Bloomberg News

Cruzeiro do Sul to Use FGC Cash to Pay Debt, Moody’s Says

March 29, 2012

Banco Cruzeiro do Sul SA, the Brazilian payroll lender downgraded today by Moody’s Investors Service, plans to pay off its dollar bonds maturing in September by selling asset-backed securities to the nation’s deposit insurance fund, the ratings company said.

Cruzeiro do Sul’s long-term foreign currency senior unsecured debt rating was cut two notches to B2, five steps below investment grade, Moody’s said. The lender plans to sell repackaged loans to Brazil’s deposit insurance fund to pay off $175 million of 8 percent dollar bonds maturing in September, Moody’s said in an e-mailed report today.

“Given the current price conditions in the external market, we are exchanging our external maturities for funding sources that are cheaper in local currency,” the company said in an e-mailed statement. “However, we consider overseas borrowings an important source of funding for the bank, and we will return to access the market as soon as it becomes attractive again.”

Moody’s downgraded Cruzeiro do Sul as Brazilian consumer banks with less than 2.2 billion reais ($1.2 billion) in equity struggle to obtain cheap long-term funding needed to finance consumer loans. Banco BMG SA, a Belo Horizonte-based payroll lender, was downgraded by Fitch Ratings yesterday. Sao Paulo- based Cruzeiro do Sul, which last sold international bonds in April 2011, relies on debt instruments backed by the country’s deposit insurance fund for 25 percent of funding, according to Moody’s.

‘Moderating Loan Growth’

The payday lender faces “an environment of moderating loan growth and increasing competition in its target market, combined with an expensive and poorly diversified funding structure,” Moody’s analysts wrote in the report.

The company will replace its dollar bonds maturing in September with “committed securitization tranches to be sold to the FGC,” or the Fundo Garantidor de Creditos, Brazil’s deposit insurance fund, Moody’s said.

Asset-backed funds, known in Brazil as fundos de investimento em direitos creditorios, or FIDCs, are typically backed by trade receivables, mortgages and other consumer or corporate loans.

2012 Yields Fall

Yields on Cruzeiro do Sul’s bonds due in 2012 fell three basis points to 8.81 percent at 5:14 p.m. in Sao Paulo. The yield on the company’s dollar bonds due in 2016 rose 14 basis points to 12.67 percent.

The outlook on Cruzeiro do Sul’s rating is negative, Moody’s said.

Banco BMG was cut two notches to B, five steps below investment grade, according to an e-mailed Fitch report yesterday.

The Fitch downgrade will have a minimal impact on BMG’s borrowing costs because it was spurred by changes in capital ratios following the bank’s recent acquisitions and by temporary accounting changes, said Ricardo Gelbaum, the bank’s financial director.

“The report does not question the sustainability of funding nor the quality of operations,” Gelabum said by phone from Rio de Janeiro. The Fitch report “will have no impact” on BMG’s ability to sell loan portfolios to other banks to raise cash, he said.

To contact the reporter on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net.net


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