Structured finance: ABN Amro launches Brazilian CLO


Chloe Hayward, Sudip Roy
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The first ever asset securitization transaction exclusively referencing Brazilian loans has been closed by ABN Amro. The deal could be the start of several other synthetic deals to come out of Latin America this year.

In February, ABN Amro closed a collateralized loan obligation structure, which referenced a loan portfolio of $850 million. The risk of this single-jurisdiction portfolio, which was made up of a few hundred loans originated by ABN Amro’s Brazilian operation, Banco Real, was shared between Dutch pension administrator PGGM and ABN Amro. The bank took on the first- and second-loss pieces and PGGM, which has €88 billion under management, is buying the mezzanine tranche.

"We believe that these Brazilian assets add value to our structured credit portfolio from a structured credit point of view, but also because it is a unique asset that adds value to our overall portfolio," says Raymond van Wersch, senior portfolio manager, structured credit, at PGGM. For PGGM this deal was a good way to invest in products that are not available in the public markets.

Bankers think that the CLO is set to find favour in Brazil. "ABN’s CLO is a very important milestone for the development of the Brazilian banking system," says Antonio Neto, head of structured finance at Société Générale in Brazil. "It demonstrates that there is liquidity for structured transactions backed by loan portfolios of Brazilian corporates even amid adverse market conditions overseas. This was also a very important test of foreign investors’ demand for Brazilian assets."

Bankers are also optimistic that in time the CLO structure will help to increase the level of confidence that foreign banks have in Brazil. "The banks can now see that they can count on the CLO to overcome the need of capital increase in connection with their fast loan portfolio expansion," says Neto. The transaction was structured such that it is efficient under Basle I and Basle II.

"Following the sub-prime crisis, investors will definitely look at any complex structure with more caution," continues Neto. "However, they will see that the credit quality of Brazilian companies is in a different trend to the companies in [developed] economies. This is a positive sale argument for ABN’s CLO and is highlighted by looking at the number of upgrades of Brazilian companies versus downgrades for US companies."

Adam Rose, head of financial markets distribution, Netherlands, at ABN Amro, adds: "This deal shows there is an appetite for CLO equity from Brazil, and so it paves the way for other investors to demand similar product."

The transaction, called Iguaçu, is structured along similar lines to a transaction that ABN Amro and PGGM also worked closely on in December 2006, which referenced a global portfolio worth €15.5 billion.