March 20, 2012 / 3:37 PM / 6 years ago

São Paulo plans Brazil ABS sale debut - sources

* São Paulo’s CPSec to sell tax-lien-backed bonds

* Transaction is Brazil’s first involving state debt

* Sources say sale could pave way for similar deals

* CPSec offers to pay 2.9 pps spread above CDI rate

By Guillermo Parra-Bernal

SAO PAULO, March 20 (Reuters) - São Paulo, Brazil’s richest state, plans to raise up to 600 million reais ($328 million) from the sale of notes backed by tax liens, the first of its kind in the country, which may spur a flurry of similar deals by other regional governments, two sources with direct knowledge of the transaction said.

Local and foreign investors have pledged to place bids for the four-year senior notes, which are slated to price on April 17, said the sources, who declined to be quoted because the deal is not completed. The transaction will limit the number of potential bidders to 50.

São Paulo, which is also Brazil’s most indebted state, is tapping growing demand for fixed-income investments as the central bank steps up efforts to cut borrowing costs. Policymakers hinted last week that the benchmark Selic overnight rate could fall to a level slightly above 8.75 percent, a record low.

Such steps are forcing bond investors in Brazil to lock up high interest rates before they fall further. Bond yields in Brazil are the highest among the world’s top 20 economies.

“This could set a precedent because many states may replicate the structure of this deal to access capital markets,” one of the sources said. “States and cities will test the waters if this deal does well.”

The state will sell the notes through Cia. Paulista de Securitização, a special purpose entity it created to oversee the pool of 2.1 billion reais in tax receivables that will be set as collateral for the transaction, the sources noted.

São Paulo is offering to pay investors a premium to ensure its successful debut in the local asset-backed securities market. CPSec, as the entity is known, is offering to pay a yield of 2.9 percentage points above the benchmark CDI interbank lending rate to lure demand for the notes, the sources said.

The CDI, a gauge of interbank borrowing costs in Brazil, is now at 9.48 percent.

Andrea Calabi, the state’s finance secretary and who engineered the transaction, declined to comment on the deal, according to a spokeswoman. Calabi is also a board member at CPSec.

The state kept the deal on hold for the past two years after global market turmoil since 2010 soured market conditions for asset-backed securities deals.

The notes are rated “AA” in the local ratings scale by Standard and Poor‘s.


High interest rates, a complex tax system and years of boom and bust cycles crimped the development of a local bond market for many years in Brazil. A recent surge in demand for corporate debt has pushed investors and government officials to jump-start fixed-income markets.

Sales of local notes and asset- and mortgage-backed securities rose to a record 93.68 billion reais last year, even as risk-aversion scared away buyers of the debt investment-banking industry group Anbima said in January.

The investment banking units of Banco Fator, Banco ABC Brasil and Itau Unibanco Holding are handling the transaction for CPSec and the state’s government, the sources noted.

The boldest innovation comes from the use of tax liens, which are often imposed for delinquent taxes owed on property or as a result of failure to pay income taxes or consumer taxes.

States and municipalities are legally forbidden from selling debt because of federal government-imposed curbs. A local newspaper said last week that some of those curbs, which form part of the Fiscal Responsibility Law enacted in 2000, could be eased in order to ease the situation of some cash-strapped regional governments.

The city of Rio de Janeiro, Brazil’s second-largest, has considered the sale of global, foreign currency-denominated bonds to finance the construction of venues to host the 2016 Olympics. The sale of the so-called Olympic bonds needs approval from the Senate, the guardian of the Fiscal Responsibility Law.

$1 = 1.83 reais Reporting by Guillermo Parra-Bernal

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