Structured finance: Brakes on Brazil’s ABS market
Record liquidity stymies growth of securitization.
Many Latin American borrowers, particularly in Brazil, are still stymied by high borrowing costs. One way that Brazilian companies have historically reduced these costs has been through securitization. So it’s only natural that many capital markets companies in Brazil are eyeing the ABS market, wondering if and when it might take off.
|Local securitization points the way ahead
Volume of deals
|Source: Fitch Ratings|
The problem is that securitization doesn’t seem to help Latin corporates very much. Interest rates are high not because the companies are uncreditworthy but for broader macroeconomic reasons. With liquidity in domestic markets and in dollars at record levels, the credit curve has never been flatter: the yield pick-up from going down the credit spectrum is very low indeed. That’s good news for unsecured borrowers, and bad news for anybody trying to persuade a company that it will save on borrowing costs by creating a more creditworthy special-purpose vehicle.
Antonio Quintella, head of Brazil at Credit Suisse, says: “The ABS market hardly exists by any standards in Brazil. The legal framework is there but there is very limited volume out there.”