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Rating Action: Moody's assigns Ba2 / Aa1.br definitive ratings to the 155th and 156th series of the 4th issuance of real estate certificates issued by ISEC Securitizadora S.A.
Global Credit Research - 28 Dec 2020
BRL 205 million of certificates rated
Sao Paulo, December 28, 2020 -- Moody's América Latina (Moody's) has assigned definitive ratings of Ba2 (Global Scale, Local Currency) and Aa1.br (Brazilian National Scale) to both the 155th and 156th series of real estate certificates ("certificados de recebíveis imobiliários" or CRI) issued by ISEC Securitizadora S.A. (ISEC, not rated). The certificates are be backed by two series of senior unsecured debentures rated Ba1 (global Scale, local Currency) and Aaa.br (Brazilian national scale) issued by B3 S.A. -- Brasil, Bolsa, Balcao (B3, Ba1 long term rating, global scale, stable outlook).
Issuer / Securitization company: ISEC Securitizadora S.A.
155ª series of the 4th issuance -- Ba2 (global scale, local currency) / Aa1.br (Brazilian national scale)
156ª series of the 4th issuance -- Ba2 (global scale, local currency) / Aa1.br (Brazilian national scale)
The Ba2 (global scale, local currency) and Aa1.br (Brazilian national scale) ratings assigned to both series of CRIs are primarily based on the willingness and ability of B3 (as obligor) to honor the payments defined in the transaction documents, which is reflected by the Ba1 (global Scale, local currency) and Aaa.br (Brazilian national scale) ratings of the underlying senior unsecured debentures backing the CRIs issuances. Any change in the ratings of the debentures will lead to a change in the ratings of the CRIs. Further, there are additional residual risks of labor, tax and pension liabilities because the securitization company has employees and operations under the same legal entity, so such risks are not segregated in the same manner as it is for other transactions we rate which are issued through a securitization company.
Each CRI series to be issued by ISEC are backed by a series of debentures issued by B3. The underlying senior unsecured debentures are rated Ba1 and Aaa.br. B3 will be responsible for covering all transaction expenses. The proceeds of the issuance will be directed to cover for expenses related to the renovation of three of B3 corporates offices in the city of São Paulo.
The 155th series of CRI are floating rate notes and will accrue, on a daily basis, a floating interest rate equivalent to DI rate (cumulative daily average accrual of interbank deposits) plus a spread of 130 bps. Interest will be paid on a monthly basis, followed by a balloon payment of principal at the legal final maturity in December 16, 2030.
The 156th series of CRI feature an annual fixed interest rate of 3.90% and a principal balance that will be adjusted by the IPCA (Extended National Consumer Price Index) inflation index; interest will be paid on a monthly basis, followed by scheduled payments of principal according to the transaction documents until the legal final maturity in December 16, 2030.
The total issuance amount across the two series is BRL 205 million.
The definitive ratings on the CRIs are based on a number of factors, among them the following:
- The willingness and ability of B3 (as obligor) to make payments on each series of the underlying debentures rated Ba1 and Aaa.br.
- Pass through structure: the payment schedule of each series of CRI replicates the scheduled cash flow of the underlying debentures, with a one-day lag, which allows for adequate timing to make payments on the CRI. The CRI will make payments that mirror the payments to be made by the underlying debentures. The floating rate of DI to be paid under the 155st series will be determined using the same DI period under the underlying debenture. The principal balance of the 156nd series will be adjusted by the same IPCA index used to adjust the underlying debentures. Also, the coupon will be calculated considering the same interest rate and accrual period. In addition, to mitigate the risk of the additional one day of interest for the first interest payment on the CRI, the debentures will initially feature one extra day of interest accrual to address any potential interest rate mismatch.
- The events of default (EOD) on the CRIs mirror those of the underlying debentures. Therefore, mitigating the risk of having an EOD on the certificates while the underlying assets are current.
- B3 pays the CRIs expenses: B3 will be ultimately responsible, under the transaction documents, for all CRI expenses.
- No commingling risk: B3 will make the payments due on the two series of debentures directly to the respective accounts of each series of CRI held at Banco Bradesco S.A. (Ba2 long-term bank deposit rating, global scale, local currency; and Aa1.br, Brazilian national scale).
- Segregated assets: The CRIs benefit from a fiduciary regime ("regime fiduciário") whereby the assets backing each series of CRI are segregated. These segregated assets are destined exclusively for payments on the CRI as well as certain fees and expenses, and will be segregated from all of the other assets on the issuer's balance sheet. However, the transaction is subject to residual legal risk because ISEC real estate credits can be affected by the securitization company's tax, labor and pension creditors. In this deal, the risk is regarded to be higher since the securitization company has employees and operations under the same legal entity and, therefore, that risk is not segregated. Further, such residual risk aforementioned has never been tested on courts.
B3 is headquartered in São Paulo, Brazil, and (B3) operates as an integrated exchange, depository and clearing house of cash equities, derivatives, foreign-exchange spot and fixed-income securities. These business lines expanded following the conclusion of the merger of the former BM&FBOVESPA with Cetip in 2017, adding activities such as the registration of over-the-counter (OTC) derivatives, fixed-income securities and car liens. In 2019, B3 reported a pre-tax income of BRL3,339.0 million (about U$847.8 million). Equities and equities instruments division is the largest line of business of the company, responsible for 49.6% of gross revenues, as of March 2020.
B3's ratings primarily are supported by its vertical integration and dominant position in its target markets as well as its diverse operations and strong operating leverage. The ratings are also underpinned by the company's increasing earnings, high pretax margins and cash flow generation.
On the other hand, the ratings are primarily constrained by the Government of Brazil's Ba2 rating (stable). B3 has a strong credit linkage to Brazilian sovereign risk through its collateral holdings of government securities and the geographical concentration of its operations.
ISEC, headquartered in São Paulo, is a securitization company established in March 5, 2007. ISEC had its first issuance in January of 2013 and up until now, the company has structured and issued, approximately, a BRL10.7 billion amount, totalizing 155 deals. ISEC is audited by BLB Auditores Independentes.
Factors that would lead to an upgrade or downgrade of the ratings:
Any changes in the senior unsecured ratings of the underlying debentures and the securitization company legal or operational structure will lead to a change in the ratings on the CRI.
The principal methodology used in these ratings was "Moody's Approach to Rating Repackaged Securities" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230078 . 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.
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.
These transactions are considered as structured finance products in accordance with Instrução CVM nº 521.
Moody's either did not receive or take 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.
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).
Moody's did not use any models, or loss or cash flow analysis, in its analysis.
Moody's did not use any stress scenario simulations in its analysis.
Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's 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, 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 have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.
Moody's America Latina Ltda. may have provided Other Permissible Service (s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please go to the report "Ancillary or Other Permissible Services Provided to Entities Rated by Moody's America Latina Ltda." in the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254877 for detailed information.
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The date of the last Credit Rating Action was 23/12/2020.
Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.
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_1243406.
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