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Rating Action:

Moody's rates Senior Shares issued by BV Financeira -- Fundo de Investimento em Direitos Creditórios V Não Padronizados, a Brazilian vehicle loan securitization

 The document has been translated in other languages

21 Dec 2010

Approximately BRL678.4 million of Senior Shares rated

Sao Paulo, December 21, 2010 -- Moody's America Latina (Moody's) has assigned provisional ratings of (P) A1.br (sf) Brazilian national scale rating and of (P) 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 - (P) A1.br (sf) (National Scale) & (P) Ba2 (sf) (Global Scale, Local Currency)

RATINGS RATIONALE

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 will issue a single series of Senior Shares to be placed with investors. The subordinated shares will be 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. 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 provides for the sale of a static pool of non-performing vehicle loans up to one month after closing for a maximum purchase price of BRL 321.0 million. The performing pool and non-performing pool will represent approximately 71% and 29% 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.

The performing loan pool 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%; and

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 non-performing vehicle loans must meet the following characteristics:

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 will be 30% of outstanding face value, with a maximum permitted investment of BRL 321 million in the target non-performing loan pool.

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 vehicles.

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 the rating.

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 days past due (dpd) receivables, 11% 120-150 days past due (dpd) receivables, 11% 150-180 days past due (dpd) receivables, 67% 180-360 days past due (dpd) receivables.

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/A1.br 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 coverage level.

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.

REGULATORY DISCLOSURES

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 rating.

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.

Sao Paulo
Johann Grieneisen
Vice President - Senior Analyst
Structured Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

New York
Maria Muller
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Moody's rates Senior Shares issued by BV Financeira -- Fundo de Investimento em Direitos Creditórios V Não Padronizados, a Brazilian vehicle loan securitization
No Related Data.
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