Fitch: Brazilian ABS Reporting Proposal Still Missing Vital Data

NEW YORK--()--Brazil's securities market regulator Comissao de Valores Mobiliarios (CVM) submitted several changes to performance reporting standards for asset-backed securities (ABS) transactions to the public recently. The changes lack important features and the breakdown of payment data could also lead users to continue to underestimate delinquencies and losses, Fitch Ratings says.

The changes add minor details to existing asset and liability information. However, the proposed version of Instruction 489 still lacks important features common in developed-market ABS investor reporting, such as transaction monthly statements of cash flow waterfall allocations. Also, the reported loan delinquency information only considers installments in arrears rather than the entire loan principal balance. This can lead users to underestimate ABS delinquencies and losses of the underlying pool.

If the changes had required more comprehensive reporting by trustees of transaction-specific performance triggers and early amortization events, they would have represented an important step toward greater transparency. Trustees already must report several performance data such as delinquencies, prepayments, repurchases and commingled collections. However, the level of detail and quality varies widely among market participants. For these reasons, Fitch does not rely on public information in its surveillance of rated transactions.

Although Instruction 489 does not provide all essential information to surveil ABS transactions and continues to raise confusion over inconsistencies among trustees' reporting, we believe efforts to increase market-wide available information and promote transparency to the Brazilian ABS sector are progressive. Nonetheless, the Brazilian ABS market has a long road ahead in bringing ABS reporting standards near to those in developed markets.

The proposed changes are to improve standards that were initially implemented in 2011 with CVM Instruction 489. It directly impacts trustees' duties regarding their monthly reporting via securitization vehicles known as Fundos de Investimentos em Direitos Creditorios (FIDCs).

Prior to 2011, many Brazilian ABS issuers had little interest or the operational capabilities to publicly report comprehensive performance information. Greater transparency was urged by the market after certain non-Fitch-rated ABS transactions came under stress or defaulted. Instruction 489 introduced a minimum regulatory standard for ABS performance reporting, in the absence of any market practice standard.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Ely Mizrahi
Associate Director
Latin American Structured Finance
+55 11 4504 2617
or
Jayme Bartling
Senior Director
Latin American Structured Finance
+55 11 4504 2602
or
Rob Rowan
Senior Director
Fitch Wire
New York, NY
+1 212-908-9159
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Ely Mizrahi
Associate Director
Latin American Structured Finance
+55 11 4504 2617
or
Jayme Bartling
Senior Director
Latin American Structured Finance
+55 11 4504 2602
or
Rob Rowan
Senior Director
Fitch Wire
New York, NY
+1 212-908-9159
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com