Outlook for the Brazilian Economy and Local Credit Markets

FOR SROLLING BAR__1__square black whiteThe economic drivers that have brought Brazil to its knees are now pointing to a more favorable climate, even though economists continue to lower their GDP forecasts. The market is now looking for GDP to fall 1.7% in 2016. The forecast for 2016 sounds bad until compared to 2015’s forecast of a decline in GDP of -3.1%. Even the most negative economists are calling for zero growth in 2017.  Similarly, our indicators are showing more favorable conditions for Brazil’s economy and eventual economic recovery.

All the bad economic news bodes ill for year-to-date performance of Brazilian credit, right? Given the severity of the Brazilian economic decline, many US credit investors assume that Brazilian asset-backed securities must be suffering the same plight as the US and European asset-backs did during that 2008/2009 crisis.  However, that is not the case. Brazilian credit, has performed reasonably well as measured by returns on leveraged subordinate ABS tranches.  Access the full report using this link:Brazil Credit 2015 and Forward Final

Brazil Mid-Year Economic Review and Implications for Credit

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As we pass mid-year Brazil’s economy continues to suffer more than even the most pessimistic economic predictions.  Almost every indicator is worse than the most negative outlook.  Interest rates and inflation are higher than expected.  Industrial Production is lower than expected. The result record levels of delinquencies and massive renegotiation of debt.

Follow this link to read the report.   Read More…

Returns on Subordinate Cotas for Brazilian ABS

FOR SROLLING BAR__1__waterfall black whiteLatin America Structured Finance Advisors just completed a study of the returns and the risk profile for subordinated cotas (tranches) of Fundos de Investimento em Direitos Creditórios – FIDCs – Brazilian ABS.

We know of only one other study that has calculated returns for this asset type and that was completed in 2007 by Uqbar.

The data shows that this investment sector is high-risk with high returns. Subordinate tranches for FIDCs are generally not marked to market; the variation in returns comes from volatility in the FIDC’s operations and credit management.  The risks are amplified by the lack of liquidity and the lack of transparency. However, investors with the tools to understand and manage the risk have been rewarded with substantial returns.

Click here to access the full report.  LASFA_returns_subordinate_tranches final

Vernon Budinger, vbudinger@latamsfc.com