Gaia Securitizadora S.A. - 1ª, 2ª e 3ª Séries da 25ª Emissão de CRA -- Moody's assigns provisional ratings of (P) Baa3 (sf) / (P) Aaa.br (sf) to the first series of the 25th issuance of Gaia Securitizadora S.A.'s agribusiness certificates, a Brazilian trade receivables securitization
Rating Action: Moody's assigns provisional ratings of (P) Baa3 (sf) / (P) Aaa.br (sf) to the first series of the 25th issuance of Gaia Securitizadora S.A.'s agribusiness certificates, a Brazilian trade receivables securitization
Global Credit Research - 11 Dec 2020
Approximately BRL 285 million of Senior CRA rated
Sao Paulo, December 11, 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 first series of the 25th issuance of agribusiness certificates (certificados de recebíveis do agronegócio, or Senior CRA) to be issued by Gaia Securitizadora S.A. (Gaiasec, not rated). The CRAs will be backed by trade receivables originated by BASF S.A. (BASF Brazil, not rated), subsidiary of BASF SE (BASF, long term rating A3, global scale, outlook stable), related to the sale of defensives for crop protection to agricultural producers, distributors and cooperatives.
Issuer: Gaia Securitizadora S.A.
First series, 25th issuance -- (P) Baa3 (sf) (global scale, local currency) / (P) Aaa.br (sf) (national scale)
RATINGS RATIONALE
The transaction is the fourth amortizing securitization backed by a static pool of trade receivables originated by BASF Brazil. The pool of trade receivables will consist of electronic invoices related to BASF Brazil's sale of defensives for crop protection.
The provisional ratings on the Senior CRA are based on a number of factors, including:
- Initial credit enhancement of 15% in the form of subordinated Mezzanine and Junior CRAs (2nd and 3rd series, respectively). The enhancement will be based on the discounted receivables' value and will be available to cover for losses and dilutions on the collateral. The receivables will be discounted at the weighted average interest rate of the CRA plus 126 business days of interests accrual to cover potential delinquencies.
- Sequential waterfall. The Senior CRA will benefit from a sequential waterfall that will allocate cash collections to amortize the Senior CRA. No payments will be made to the mezzanine or subordinated CRA before the Senior CRA are paid down in full.
- Strong and experienced originator. BASF Brazil is a subsidiary of BASF SE, one of the world's largest chemical companies and a one of the leading players in the global agrichemical industry. BASF Brazil has originated the receivables according to the company's global credit underwriting policies and will remain ultimately responsible for the correct formalization of the underlying assets, for potential dilutions that may arise and to operate as a backup servicer in the transaction. The three prior transactions originated by BASF Brasil performed within expections, with the Senior CRA amortized. Finally, BASF Brazil has the obligation, under the transaction documents, to repurchase the underlying receivables in case of dilutions or incorrect formalization.
- Diversified pool of trade receivables. The preliminary pool cut will have a maximum concentration of 3% per obligor, by economic group, consisting of 84 distributors, 3 agricultural producers and 13 cooperatives. The initial credit enhancement will be sufficient to cover the 5 largest obligors in the pool. The receivables will be distributed in 12 Brazilian states, with 35% of concentration in the state of Rio Grande do Sul, 17% in Minas Gerais, 12% in Paraná e 9% in São Paulo. Approximately 81% of the receivables will mature between March and May 2021 and 19% between June and September of the respective year.
- Stable and low historical delinquency levels of BASF Brazil agricultural trade receivables portfolio.
- Dilution risk. Cumulative monthly dilution events in the 9-month period ended in July 2020 represented approximately 1.72% of BASF's total agrichemical sales and 2.80% for the eligible clients stratification, primarily related to products returned. The risk of the Senior CRA being impacted by dilutions is mitigated by the obligation under the transaction documents of BASF Brazil to repurchase any diluted receivables and by the credit enhancement available in the transaction.
- Receivables' formalization. The obligors in the pool will be electronically notified and informed that: (i) BASF Brazil has sold the receivables to Gaiasec; (ii) payments should be made directly to the trust account at the receivables due date and (iii) an acknowledgment from the obligor that the products have been delivered in accordance with the descriptions in the invoices. Afort Serviços e Soluções Financeira Ltda (Afort, not rated) is a third party that will verify the correct formalization and the receivables eligibility criteria. Despite Afort role, BASF Brazil, as the originator and seller of the receivables, remains as the ultimate responsible for the existence and correct formalization of the underlying assets.
- Interest rate mismatch risk. The receivables will be purchased at a fixed discount rate and the Senior CRA will be indexed to the DI rate (interbank deposit rate). This risk will be covered through an interest rate option negotiated with B3 S.A. -- Brasil, Bolsa, Balcão (B3 S.A., long term rating Ba1, global scale, outlook stable), with notional value equal to Senior CRA total volume and with a maturity date as close as possible to the receivables' maturity date. The senior CRA are subject to a residual interest rate risk in case delinquencies extend the duration of the pool beyond the interest rate options expiration dates. Moody's considers the hedge mechanism, as well as this residual risk, consistent with the ratings assigned to the Senior CRA (for more information, see the "Interest Rate Mismatch Risk" ("Risco de Descasamento de Taxa de Juros" section in the Pre-sale Report).
- Commingling risk. The receivables will be serviced by a third party, GaiaServ Assessoria Financeira Ltda (GaiaServ, NR), that will be responsible for sending payments slips to the obligors registered with Banco do Brasil S.A. (Banco do Brasil, long term deposit rating Ba2, global scale, local currency; and Aa1.br Brazilian national scale), so that payments will flow directly to the transaction's segregated trust account. In addition, the obligors will be notified electronically of the assignment to make payments directly to the trust account. In case the obligors incorrectly pays directly to the seller, BASF Brazil will have to remit the cash flows to the trust account within 5 business days.
- Segregated assets. The CRAs benefit from a fiduciary regime (regime fiduciário) whereby the assets backing the CRAs will be segregated. These segregated assets are destined only for payments on the CRAs and payment of certain fees and expenses, and will be segregated from all other assets on the issuer's balance sheet. However, the transaction is subject to residual legal risk because Gaiasec's agribusiness credits can be affected by the securitization company's tax, labor and pension creditors. (For more information, see the "Fiduciary Regime and Segregation of Assets" ("Regime Fiduciário e Patrimônio Separado") section in the pre-sale report.
The legal final maturity of the senior CRA will be on March 30, 2022, 15 months after the transaction's expected closing. The senior CRA will accrue, on a daily basis, a floating interest rate equivalent to DI rate (cumulative daily average accrual of interbank deposits) plus a spread up to 220 bps, to be determined before closing. Principal and accrued interests to the senior CRA will be paid monthly, on cash basis, starting on June 2021, according to the amount of collections received in the previous month.
Moody's analyzed the sellers' receivables pool for the 79-month period reviewed by PwC starting in January 2014 and ending in July 2020. During this period, BASF Brazil generated BRL 28.8 billion of trade receivables related to its agricultural business. As modeling input assumptions, Moody's used a central mean of 2.80 % monthly dilutions and 0.08% monthly losses over the outstanding pool balance, and it assumed portfolio turnover of 187.7 days. The standard deviation assumptions for dilutions, losses and turnover were 2.42%, 0.24% and 39.8 days, respectively. Moody's calculated loss assumptions using as a proxy delinquencies between 121 to 150 days past due over the total portfolio.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that may lead to a downgrade of the ratings include (i) a deterioration in the credit quality of the originator and/or its parent, (ii) an increase on losses or dilution levels beyond the level Moody's assumed when rating this transaction and (iii) any changes in the ratings of B3 S.A.
Factors that may lead to an upgrade of the ratings include (i) improvement in the credit quality of the originator and/or its parent and (ii) a significant decrease on losses or dilution levels beyond the level Moody's assumed when rating this transaction.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of corporate assets from the current weak Brazilian economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the COVID-19 outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
The principal methodology used in these ratings was "Moody's Approach to Rating Trade Receivables-Backed Transactions" published in July 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1231931. Alternatively, please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.
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.
REGULATORY DISCLOSURES
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 transaction is considered as structured finance products 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 rating.
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).
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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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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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Ely Mizrahi Asst Vice President - Analyst Structured Finance Group Moody's America Latina Ltda. Avenida Nacoes Unidas, 12.551 16th Floor, Room 1601 Sao Paulo, SP 04578-903 Brazil JOURNALISTS: 0 800 891 2518 Client Service: 1 212 553 1653 Daniela Jayesuria Senior Vice President/Manager Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's America Latina Ltda. Avenida Nacoes Unidas, 12.551 16th Floor, Room 1601 Sao Paulo, SP 04578-903 Brazil JOURNALISTS: 0 800 891 2518 Client Service: 1 212 553 1653
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