BRL678.0 million of Senior Shares rated
Sao Paulo, March 16, 2011 -- Moody's America Latina (Moody's) has assigned definitive ratings of A1.br
(sf) Brazilian national scale rating and of Ba2 (sf) global local currency
rating to the Senior Shares to be issued by BV Financeira --
Fundo de Investimento em Direitos Creditórios V Não Padronizados
(BV FIDC V NP or the issuer), a securitization backed by a pool
of performing and non-performing vehicle loans originated by BV
Financeira S.A. -- Crédito, Financiamento
e Investimento (BV Financeira).
Issuer: BV Financeira -- Fundo de Investimento em
Direitos Creditórios V Não Padronizados
Senior Shares - A1.br (sf) (National Scale) & Ba2 (sf)
(Global Scale, Local Currency)
The ratings are based on the following factors, among others:
- The 37% credit enhancement at closing and on-going
minimum 25% credit enhancement in the form of subordination supporting
the Senior Shares;
- The 4.5% minimum excess spread, whereby excess
spread is fully retained within the structure while Senior Shares remain
outstanding, increasing available credit enhancement throughout
the life of the transaction;
- The overall credit characteristics of the securitized pool of
vehicle loans, which consists of (i) a performing loan pool which
benefits from BV Financeira's established underwriting policy, fund
eligibility criteria and concentration limits, and (ii) a non-performing
loan pool which benefits from BV Financeira's historical track record
in loan recovery;
- The transaction structure and its legal framework, including
the bankruptcy remoteness of the issuer and well-established Brazilian
laws and regulations; and
- The financial strength, operational quality and ability
of BV Financeira, the originator and primary servicer, to
service the underlying assets.
BV FIDC V NP is a closed-ended FIDC and issued a single series
of Senior Shares placed with investors. The subordinated shares
were entirely retained by the seller parent company, Banco Votorantim.
The Senior Shares will accrue a floating-rate interest of DI Rate
(Brazilian Interbank Rate) times an annual spread of 110%.
The final maturity of the fund will take place 36 months after initial
issuance of the Senior Shares, with a final maturity date at December
31, 2013. The Senior Shares will accrue interest during the
first 5 months followed by 31 monthly principal and interest amortization
payments starting on month 6 and ending on month 36.
No interest or principal payments will be made to the subordinated shares
as long as there are Senior Shares outstanding. No partial redemptions
of subordinated shares are allowed at any time.
The assets backing the FIDC BV V NP are primarily performing vehicle loans
with identical eligibility criteria to BV Financeira's previous securitization
rated by Moody's, BV FIDC IV. The administrator may use excess
cash flows for purchasing additional performing vehicle loans subject
to the performing loan eligibility criteria.
The transaction also acquired a static pool of non-performing vehicle
loans over the first month after closing for a purchase price of BRL 240.0
million up to December 2010. The performing pool and non-performing
pool represent 64.1% and 35.9% (as of December
31st, 2010) of the fund's total assets, respectively,
calculated using the purchase price for these assets.
The transaction structure includes triggers leading to revision events.
Should a revision event occur, revolving purchases of new vehicle
loans are immediately stopped and a shareholders meeting is called;
shareholders may decide to place the fund into early liquidation.
Key revision event triggers include:
- Breach of the minimum subordination level (25%);
- Breach of minimum excess spread (4.5%); and
- Downgrade of the Senior Shares rated by Moody's below the initial
A1.br (sf) /Ba2 (sf) rating level.
Any performing loans purchase will meet the following criteria:
i. Final maturity of vehicle loans must be before final maturity
date of the Senior Shares;
ii. Maximum pool concentration per type of vehicle: motorcycle
10%, heavy vehicles 20% and sedans up to 100%;
iii. Sum of installments should not be more than BRL50,000
per obligor (companies or individuals).
Servicing of performing loans is performed entirely in-house by
BV Financeira and benefits from established systems and processes.
The acquisition of non-performing vehicle loans met the following
i. Vehicle loans sold to the fund must be past due and not paid
for a minimum of 90 days and a maximum of 360 days; and
ii. Loans must be legally and exclusively owned by BV Financeira.
The purchase price for the non-performing vehicle loans was 30%
of outstanding face value, with an investment of BRL 240.0
million. The breakdown of the non-performing portfolio acquired
was within expected range: 14% 90-120 days past due
(dpd) receivables, 13% 120-150 dpd receivables,
12% 150-180 dpd receivables, 61% 180-360
Banco Bradesco S.A. (Bradesco, which Moody's rates
A1 for global local currency deposits and Aaa.br on Brazilian national
scale) will act as master servicer (custodiante) of the transaction as
well as Payment Bank. Its responsibilities include, among
other duties, verifying that all receivables purchased by the fund
meet the eligibility criteria, monitoring the early amortization
triggers, in addition to managing all of the issuer's daily financial
and operating activities.
Votorantim Asset Management DTVM Ltda is the trustee.
BV Financeira is the fourth largest originator of vehicle loans in Brazil,
ranking after Itaú Unibanco S.A, Banco Bradesco S.A
and Santander, with a total loan portfolio of about BRL25.6
billion as of June 2010. It is wholly owned subsidiary of Banco
Votorantim S.A. BV Financeira operates through approximately
20,000 certified car dealers mainly located in the South and Southeast
regions of Brazil, and focuses primarily on used sedans and sport-utility
BV Financeira is fully controlled by Banco Votorantim S.A.
(which Moody's rates A3 for global local currency deposits and Aaa.br
on Brazilian national scale).
Headquartered in Sao Paulo, Banco Votorantim is one of the largest
banks of the Brazilian banking system, posting BRL110.4 billion
in total assets and BRL8 billion in equity as of June 30, 2010.
In January 2009, the group settled a strategic partnership with
Banco do Brasil, a federally owned institution and largest bank
in the country, which now holds 50.00% in total equity
capital of Banco Votorantim. This transaction was approved by regulatory
authorities in September 2009. Banco Votorantim is involved in
multiple lines of business such as consumer finance (mostly vehicles financing),
corporate banking, capital markets, brokerage, treasury,
international business and asset management.
Moody's key ratings-model assumptions for this transaction include
various performance statistics for the performing loan pool (which constitutes
the bulk of the assets) and the non-performing pool sub-portfolio.
For the performing loan pool, key statistics include a mean of the
loss rate of 5.5% p.a. and a standard deviation
of 3%. Moody's assumes that the credit losses are lognormally
distributed. Further model input assumptions included annual prepayment
rate of performing vehicle loans (15%) and minimum discount rate
(145% of DI Rate) used for the purchase of the performing assets
by the FIDC.
For the non-performing pool, key statistics include timing
and recovery amounts for defaulted loans. Moody's base case projection
for the non-performing pool is a cumulative recovery of 17.0%
of outstanding face value during the life of the transaction. A
50% haircut was applied to the base case projection resulting in
a 8.5% cumulative recovery used in modeling assumption supporting
Another assumption in Moody's modeling involved the breakdown of the non-performing
loan pool per delinquency bucket. Moody's modeling assumed a target
portfolio presented by the issuer with following breakdown: 12%
90-120 (dpd) receivables, 11% 120-150 dpd receivables,
11% 150-180 dpd receivables, 67% 180-360
These factors (performing pool and non-performing pool statistics,
breakdown of the non-performing pool) were incorporated in a cash
flow model that takes into account all the relevant structural features
of the fund's assets and liabilities and as defined in the transaction
documents. Monte Carlo simulations were run for a large number
of scenarios, whereby the annual credit loss assumption for the
performing pool was drawn in each scenario from the lognormal distribution
described above. Other risk factors, such as rising interest
rates, prepayments and recoveries on the non-performing pool,
were statically stressed commensurate with the Ba2 (sf) /A1.br
(sf) rating level. The resulting cash flows available to the Senior
Share holders for each scenario was then discounted using the promised
110% of DI Rate to determine if, and the amount of,
loss to the Senior Shares. Expected loss and probability of default
on the Senior Shares are then computed across all scenarios. These
statistics were finally translated into Moody's global scale rating and
national scale rating. Other methodologies and factors that may
have been considered in the process of rating these issuers can also be
found in the Credit Policy & Methodologies directory on Moody's website.
Deterministic rating sensitivities were evaluated by running the model
and varying single input assumptions while remaining all other assumptions
equal. For example, by reducing the haircut on base case
recovery assumptions of the non-performing loans from 50%
to 25%, the implied transaction rating would raise by one
notch from Ba2 to Ba1 in the global scale. In stressing the haircut
from 50% to 75%, implied rating would fall from Ba2
to B2 in the global scale.
Deterministic break-even analysis were also performed to assess
the maximum annual credit loss rate the transaction can support before
senior shareholders suffer losses. For example, should in
an extreme case recoveries on the non-performing pool be nil,
Senior Shares would start to suffer a loss if the annual credit loss rate
on the performing pool would exceed 6.7% or a 1.2x
coverage assuming base case 5.5% credit losses on the performing
pool. Similarly, for the base case scenario, the break-even
loss rate is 12.4% for the performing pool or a 2.3x
The main assumption uncertainty involves the variability of recoveries
of non-performing loans. The amounts recovered and the timing
of recoveries are subject to variance depending on the aging of the receivable,
recovery efforts on part of the primary servicer, and market conditions
including market price of used vehicles.
Moody's Investors Service received and took into account a third party
due diligence report prepared by KPMG on the underlying assets or financial
instruments in this transaction and the due diligence report had a positive
impact on the rating.
Information source(s) used to prepare the credit rating are the following:
parties involved in the ratings and public information.
Moody's Investors Service considers the quality of information available
on the certificates satisfactory for the purposes of assigning a credit
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Structured Finance Group
Moody's America Latina Ltda.
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moody's assigns definitive ratings to the Senior Shares issued by BV Financeira -- Fundo de Investimento em Direitos Creditórios V Não Padronizados, a Brazilian vehicle loan securitization
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903