March 16, 2017 / 11:01 AM / 4 months ago

Brazil's Creditas taps asset-backed debt market to fund auto loans

SAO PAULO, March 16 (Reuters) - Brazilian financial technology company Creditas Soluções Financeiras Ltda tapped the asset-backed debt market to raise 50 million reais (US$16 million) for auto loan refinancing, its chief executive said, an area shunned by traditional lenders after soaring delinquencies.

Sergio Furio said the transaction in February was the first in which Creditas fully decided collection and credit scoring procedures. Proceeds will go to refinance borrowers at a fraction of the cost of auto loans from banks.

Creditas partnered with money manager Empírica Investimentos Gestão de Recursos Ltda to launch FIDC Empírica Creditas Auto, the investment vehicle bundling the securities.

Local asset managers and family offices bought the senior and mezzanine portions of the FIDC, Empírica managing partner Leonardo Calixto said.

Creditas' auto loan bet helps fill a void left by large- and mid-sized lenders, which partially exited that market five years ago after surging defaults. During that period, outstanding auto loans by Itaú Unibanco Holding SA, Brazil's No. 1 bank by assets, shrank by about 70 percent.

Use of securitization could help fintechs fund loan origination more efficiently, potentially driving down some of the world's highest borrowing costs. A dozen lenders dominate 90 percent of outstanding credit in Brazil.

Consumers in Latin America's biggest country pay an average 190 percent a year for unsecured overdraft, credit card and consumer loans with banks.

Empírica's Calixto said that institutional investors from money managers to pension funds were eyeing fintech-oriented FIDCs, because of their longer maturities than more popular receivable-backed debt, low price volatility and the access they provide to a whole new asset class.

Empírica is discussing a transaction that would bundle Creditas' home equity loans into a FIDC, Calixto said, adding that it could hit the market by mid-year.

"Investors have understood the idea that a migration towards secured credit will eventually generate more credit underwriting volumes and origination efficiency," Creditas' Furio said. "They want to be a part of it."

Creditas fetched $19 million from investors in a financing round that concluded this month, including the World Bank's International Finance Corp, Naspers Ltd's fintech arm and Brazilian venture capital firm Redpoint eventures.

Caught Off-Guard

Brazilian banks have in recent months turned their attention to how local fintechs are operating, after witnessing how peers in more mature markets were caught off-guard.

Fintechs represent a small portion of Brazil's banking services, though segments such as credit cards, financial advisory and consumer lending are growing fast.

Secured personal credit accounts for 1 percent of Brazil's outstanding lending, a sign large banks have overlooked a segment that could thrive as benchmark domestic interest rates approach single-digits.

Creditas could offer auto refinancing at monthly rates between 1.99 percent and 3.65 percent, corresponding to an annual rate of about 37 percent. Banks charge 120 percent annually for such a credit facility.

Creditas funds loans using capital from investors or through partnerships with traditional financial institutions. Its hybrid financing model allows it to originate loans using the borrower's home or automobile as collateral. ($1 = 3.1030 reais) (Reporting by Guillermo Parra-Bernal; Editing by Daniel Flynn)

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