Approximately R$2,000 Million of Senior Shares rated
Sao Paulo, August 03, 2010 -- Moody's America Latina (Moody's) has assigned provisional ratings of (P)Aa1.br
(sf) Brazilian national scale rating and of (P)Ba1 (sf) global local currency
rating to the senior shares to be issued by BV Financeira --
Fundo de Investimento em Direitos Creditórios IV (BV FIDC IV or
the issuer), a securitization backed by a pool of vehicle loans
originated by BV Financeira S.A. -- Crédito,
Financiamento e Investimento (BV Financeira).
The ratings are based on the following principal factors:
- The 20% minimum credit enhancement in form of subordination
supporting the senior shares;
- The 4.5% minimum excess spread;
- Retention of excess spread within the structure while senior
shares remain outstanding, which increases available credit enhancement
throughout the life of the transaction;
- The overall credit characteristics of the securitized pool of
vehicle loans which benefits from BV Financeira´s established underwriting
policy, fund eligibility criteria and concentration limits;
- 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 IV is a closed-ended FIDC and will issue senior shares
and subordinated shares. The subordinated shares will be entirely
retained by the seller. The final maturity of the senior shares
is 36 months after issuance. The senior shares will accrue a floating-rate
interest of CDI (Brazilian Interbank Rate) times an annual spread of 110%.
The senior shares will pay 6 monthly principal and interest amortization
payments starting on month 31 and ending on month 36 of the transaction.
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.
In order to insure timely repayment of principal and interest payments
on the senior shares on the final payment date, the trustee will
reinvest cash flows arising from the vehicle loan portfolio into eligible
liquid assets as the transaction approaches the scheduled amortization
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 at
which point the shareholders may decide to place the fund into early liquidation.
Key revision event triggers include:
- Breach of the minimum subordination level (20%);
- Breach of minimum excess spread (4.5%);
- Downgrade of the senior shares rated by Moody´s below the
initial Aa1.br (sf) /Ba1 (sf) rating level;
POOL CHARACTERISTICS AND SERVICING
The collateral backing the senior shares consists of a pool of vehicle
loans that meet the fund's eligibility criteria including:
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).
All securitized loans must conform to BV Financeira´s loan underwriting
criteria, including the following key obligor requirements:
i. be at least 18 years old;
ii. maintain a clean record on the main credit bureau agencies
(Serasa and SPC);
iii. provide a two-year employment history (one-year
employment history for motorcycles);
iv. have no record of bankruptcy, repossession or foreclosure;
v. maximum debt-to-income: 30% (all
monthly debt & rent payments to monthly gross income);
Servicing of loans is performed entirely in-house by BV Financeira
and benefits from established systems and processes.
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 will be 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, BV is one of the largest banks of the
Brazilian banking system, posting R$94.8 billion in
total assets and R$8 billion in equity as of March 31, 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. BV 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.
A key methodology used in rating the transaction is "Moody's Approach
to Rating U.S. Auto Loan-Backed Securities,"
which can be found at www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issue can also be found in the Rating Methodologies sub-directory
on Moody's website.
In assigning the (P)Ba1 (sf) / (P)Aa1.br (sf) ratings to the Senior
Shares, Moody's considered the key sources of credit enhancement
-- subordination and excess spread -- in a stressed scenario
with view on the historical performance of the auto loan assets.
In addition, Moody's considered risk factors common to all
auto loan transactions such as credit losses and lost cash flows due to
loan prepayments and re-financings, funding cost increases
and transaction expenses.
These risk factors were stressed to evaluate the impact on Senior Shareholders.
This transaction was rated on both a probabilistic simulation approach
to evaluate losses under a large number of scenarios, as well as
on a deterministic basis to assess how the transaction structure would
perform in simultaneous stresses of the risk factors such as a combined
increase in default rate, prepayments and interest rates.
Moody's observes the impact on the resulting cash flows available
for servicing the Senior Shares, and calculate whether the promised
target return of 110% of CDI is met.
In rating the transaction, Moody´s considered a base case
of historical portfolio performance including credit losses of 5.5%
p.a. and a prepayment rate of 15% p.a.
The break even credit loss rate is 15% per annum (or 2.7x
base case annual credit losses) at which point the senior shares start
to experience losses, assuming a stressed interest rate (CDI) environment
of 15%, prepayment rate of 15% per annum and minimum
discount rate of 145% of CDI.
Further details of Moody's analysis of BV FIDC IV can be found in the
New Issue Report, to be published and available at Moody's website
The complete rating action is as follows:
BV FIDC IV -- Senior Shares -- (P)Aa1.br (sf)
(National Scale) & (P)Ba1 (sf) (Global Local Currency Scale).
Asst Vice President - 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 rates Senior Shares issued by BV Financeira -- Fundo de Investimento em Direitos Creditórios IV, a Brazilian vehicle loan securitization
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903