Rating Action: Moody's assigns provisional ratings to shares of Chemical XI - FIDC Indústria Petroquímica
Global Credit Research - 24 Aug 2020
Approximately BRL 363,2 million of senior shares and BRL 28,8 million of mezzanine shares rated
Sao Paulo, August 24, 2020 -- Moody's America Latina Ltda. (Moody's) has assigned provisional ratings of (P) Baa3 (sf) (Global Scale, Local Currency) and (P) Aaa.br (sf) (Brazilian National Scale) to the senior shares, and (P) B2 (sf) (Global Scale, Local Currency) and (P) Ba1.br (sf) (Brazilian National Scale) to the mezzanine shares to be issued by Chemical XI - FIDC Indústria Petroquímica, a securitization backed by a pool of trade receivables and originated by Braskem S.A. (Ba1, negative outlook).
Issuer: Chemical XI - FIDC Indústria Petroquímica (Chemical XI - FIDC)
Senior Shares - (P) Baa3 (sf) (Global Scale, Local Currency) and (P) Aaa.br (sf) (Brazilian National Scale)
Mezzanine Shares - (P) B2 (sf) (Global Scale, Local Currency) and (P) Ba1.br (sf) (Brazilian National Scale)
The provisional ratings address the structure and characteristics of the transaction based on the information provided to Moody's as of August 18, 2020. Certain issues relating to this transaction have yet to be finalized. Upon conclusive review of all documents and legal information as well as any subsequent changes in information, Moody's will endeavor to assign definitive ratings to this transaction. If any assumptions or factors considered by Moody's in assigning the ratings change, Moody's could change the ratings assigned to the senior and mezzanine shares.
Chemical XI - FIDC is a close-ended FIDC and will have a final legal maturity of 24 months from closing. Moody's assigned provisional ratings to the senior shares and to the mezzanine shares. The senior shares and the mezzanine shares accrue, on a daily basis, a floating rate of interest equivalent to the DI rate (Brazilian interbank rate) plus a fixed spread to be determined at closing.
Moody's bases the ratings on the following factors:
- Credit enhancement in the form of subordination for senior shares ranging from 9.09% to 13.04%, which adjusts according to transaction performance, to mitigate losses due to obligor default or dilution. The minimum subordination level for the mezzanine shares is 2%. The transaction also benefits from a reserve account to provide liquidity at payment dates and it is funded prior to those dates by (i) 30% of estimated payment amount, 30 days prior, and (ii) 100% of estimated payment amount, 10 days prior.
- The eligibility criteria of the trade receivables, represented by electronic invoices to be acquired by the issuer, which include concentration limits by client, delinquency by client and maximum term of the trade receivables. The maximum individual obligor concentration limit is 3%.
- Low and stable historical delinquency and dilution levels of the sellers' trade receivables portfolio.
- Very low commingling risk as payments by obligors are made directly to the fund's segregated account that it maintains at Banco Bradesco S.A. (Ba2, stable outlook, long-term bank deposit rating, Global Scale, Local Currency; and Aa1.br, Brazilian National Scale).
- Braskem's sound track record sponsoring and servicing securitization transactions and the stable performance of these previous transactions. Chemical XI - FIDC is Braskem group's eleventh securitization of its trade receivables portfolio. The performance of past transactions has been in line with the original assumptions that Moody's used to rate the transactions.
During the initial 18 months of the transaction, the fund will not make principal payments to the senior and mezzanine shares and interest payments will be paid on a semi-annual basis. After the end of the grace period, the transaction will enter a final 6-month amortization period, when it will make monthly principal and interest payments. Senior and mezzanine shares will follow the same amortization schedule.
Amortization payments to the mezzanine shares will only be allowed: (1) after the fund has made the scheduled senior amortization payments; and (2) as long as the fund maintains the minimum senior subordination ratio.
Commingling risk is mitigated because obligors are instructed to pay directly into a segregated account in the name of the fund by means of pay slips that Banco Bradesco and other selected collection banks generate. The seller must remit any monies they receive to the segregated account within two business days; a non-automatic acceleration event (evento de avaliação) is triggered if payments made directly to the seller's account within a month are higher than 5% of fund's net assets. The seller will act as primary servicer.
Moody's analyzed the seller's receivables pool for the 44-month period, reviewed by E&Y, starting in October 2016 and ending in May 2020. During this period, Braskem generated BRL 137.0 billion of trade receivables from approximately 1,204,278 separate invoices. As modeling input assumptions, Moody's used a central mean of 0.33% monthly dilutions and 0.11% monthly losses over the outstanding balance, and it assumed portfolio turnover of 24 days. Moody's calculated loss assumptions using as a proxy delinquencies from 91 to 120 days past due receivables over the total pool.
Moody's key ratings model assumptions for this transaction are Braskem's rating, loss rate and dilution rate.
Factors that would lead to a upgrade or downgrade of the ratings:
Factors that could lead to a downgrade of the rating include (i) an increase in defaults and dilution levels beyond the level Moody's assumed when rating this transaction, and (ii) a deterioration in the credit quality of Braskem.
Factors that could lead to an upgrade of the rating include (i) a significant decrease on losses or dilution levels beyond the level Moody's assumed when rating this transaction, and (ii) improvement in the credit quality of Braskem.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of FIDC Chemical XI from the collapse in Brazil economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety
The principal methodology used in theses ratings was "Moody´s Approach to Rating Trade Receivables-Backed Transactions" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1231931. Alternatively, please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.
Further details of Moody's analysis of the Chemical XI - FIDC can be found in the pre-sale report, to be published on www.moodys.com.br.
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
This transactions is considered as structured finance product in accordance with Instrução CVM nº 521.
Moody's took into account one or more third party due diligence assessment (s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action and used the Due Diligence Assessment(s) in preparing the rating. This had a neutral impact on the ratings.
The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).
The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.
Information sources used to prepare the rating are the following: parties involved in the ratings, and public information.
Information types used to prepare the rating are the following: financial data, economic and demographic data, debt documentations, legislation, by-laws and legal documents, historical performance data, public information, Moody's information, and regulatory filings.
Sources of Public Information: Moody's considers public information from many third party sources as part of the rating process. These sources may include, but are not limited to, the list available in the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1235261.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
The ratings has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
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For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.br.
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Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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