Fitch: End of Investment-Grade Era Could Revive Brazilian Future Flow Issuance
OREANDA-NEWS. Deteriorating conditions for unsecured issuance could lead Brazil's top-tier banks to return to future flow issuance, according to a new special report by Fitch Ratings.
Historically, Brazil was the largest market for future flow issuance; however, traditional issuers, aided by better issuer credit quality and sovereign stability, shifted away from future flow issuance and took advantage of improved access to unsecured debt markets during Brazil's economic upswing.
But recent macroeconomic deterioration has resulted in a harsh operating environment for Brazilian banks, weighing on issuer credit quality. To help meet future funding needs, Brazil's top-tier commercial banks are well positioned to securitize diversified payment rights (DPR) business lines.
Fitch began rating cross-border financial future flow transactions in the early 1990s and has seen the marketplace evolve ever since. The agency has rated hundreds of issuances from around 50 financial future programs sponsored by emerging market (EM) financial institutions.
EM financial future flows have performed exceptionally well; all Fitch-rated programs have paid debt service on time according to schedule, in some cases despite severe sovereign stresses. While there have been a few downgrades within this asset class, there has never been a default related to a financial future flow transaction.
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