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06 Nov 2018
First-time insurance financial strength ratings assigned to Brazilian-based financial guarantors
New York, November 06, 2018 -- Moody's Investors Service (Moody's) has assigned a B1 insurance
financial strength (IFS) rating to Agencia Brasileira Gestora de Fundos
Garantidores e Garantias S.A. (ABGF) and a Baa1.br
IFS rating on Brazil's national scale (NS). The outlook for
the ratings is stable.
In the same rating action, Moody's assigned a Ba3 IFS rating
to Fundo Garantidor de Infraestrutura (FGIE) and an A1.br IFS rating
on Brazil's NS. The outlook for the ratings is stable.
Moody's said that ABGF's B1 IFS rating considers Moody's joint default
analysis for the company as a government-related issuer and therefore,
it incorporates our assumptions for moderate support and very high dependence
levels from the government of Brazil (Ba2 stable). The integration
and support are illustrated by ABGF's status as a major holding
company with subsidiaries that provide guarantees for risks in lending
operations that support a variety of sectors and activities that are of
the interest to the national government, including Brazilian exports,
financing of infrastructure projects and housing. ABGF's baseline
credit assessment (BCA) of b2 reflects the company's credit profile on
a stand-alone basis, which considers the company's
lack of operational history in providing financial guarantees at the entity
level, as well as uncertainty regarding its business plan for future
operations. The rating agency went on to say that ABGF's
investment portfolio is mostly comprised of illiquid assets, which
creates much uncertainty in the event that the company begins issuing
guarantees. ABGF's Baa1.br NS IFS rating is based
on the application of Moody's mapping criteria for a B1 rating to the
Brazilian national scale. ABGF's Baa1.br rating is
positioned at the top of the range of possible outcomes on the Brazilian
national scale for B1 rating, indicating its stronger creditworthiness
relative to other B1-rated issuers in Brazil.
According to Moody's, FGIE's Ba3 IFS rating primarily
reflects the fund's low expected operating leverage, adequate
capitalization and strong profitability levels. The rating is also
based on the fund's investment portfolio, mostly composed
of Brazilian government bonds, which provides an important source
of liquidity. Additional rating considerations include the fund's
limited financial and operational history, as well as its evolving
business strategy and Brazil's moderate operating risk level.
Expanding on the rating rational, Moody's considers that,
because FGIE will provide guarantees to infrastructure projects,
the fund's product profile will be exposed to low granular risks
and high-severity losses, which constrains FGIE's overall
credit profile. FGIE's A1.br NS IFS rating is based
on the application of Moody's mapping criteria for a Ba3 rating to the
Brazilian national scale. FGIE's A1.br rating is positioned
at the top of the range of possible outcomes on the Brazilian national
scale for Ba3 rating, indicating its stronger creditworthiness relative
to other Ba3-rated issuers in Brazil.
Commenting on factors that could result in an upgrade for ABGF's ratings,
Moody's cited the following: 1) an upgrade of Brazil's sovereign
rating; 2) improved asset quality with a substantial increase of
fixed income assets in the company's investment portfolio;
3) a consistent business plan to develop financial guarantee products
at ABGF level with clear objectives, including (but not limited
to) future business strategy, product risk profile, and expected
operating leverage; and/or 4) increased implicit or explicit parental
support. Conversely, among the factors that could lead to
a downgrade of the company's ratings are the following: 1)
downgrade of Brazil's government bond rating; 2) deterioration
in the country's insurance operating environment; and/or 3)
decline in support from the Brazilian government to ABGF.
Moody's mentioned that FGIE's rating could be upgraded in
case of an upgrade of Brazil's sovereign rating, a multi-notch
upgrade of ABGF, or a significant business expansion while maintaining
strong profitability and capitalization metrics. Conversely,
among the factors that could lead to a downgrade of the fund's ratings
are the following: 1) downgrade of Brazil's government bond
rating; 2) deterioration in the country's insurance operating
environment; 3) deterioration in fund's profitability;
and/or 4) deterioration in fund's capital adequacy, with a
leverage higher than 5x shareholders' equity.
Headquartered in Brasilia, Brazil, ABGF is a state-owned
financial institution that was established in 2012, and through
the funds it manages and holds, provides guarantees for risks in
lending operations in areas that are perceived to have economic and social
importance. The entity supports a variety of sectors and activities,
including Brazilian exports, financing of infrastructure projects
and housing. As of December 31 2017, its total assets amounted
to BRL2,821 million ($852 million) and shareholders'
equity totaled BRL 2,569 million ($776 million). The
entity recorded a net income of BRL46 million ($14 million) in
Based in Brasilia, Brazil, FGIE is a wholly-owned subsidiary
of ABGF and was established in November 2014 with the objective to guarantee,
directly or indirectly, credit risk, performance risk,
obligation risk, and engineering risk coverages in operations that
involve infrastructure projects. As of December 31, 2017,
its total assets amounted to BRL569 million ($171.9 million)
and shareholders' equity was BRL568.6 million ($171.8
million). The company recorded a net income of BRL60 million ($18.2
million) in 2017.
The principal methodologies used in rating Agencia Brasileira Gestora
de Fundos Garantidores e Garantias S.A. were Government-Related
Issuers published in June 2018, and Financial Guarantors published
in May 2018. The principal methodology used in rating Fundo Garantidor
de Infraestrutura was Financial Guarantors published in May 2018.
Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.
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for additional regulatory disclosures for each credit rating.
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