Ecoagro places landmark soy securitisation

Abstract

Eco Securitizadora de Direitos Creditorios do Agronegocio (Ecoagro) has placed the first securitisation of agricultural receivables for soya producers (hereon known by its Portuguese acronym, CRA). This landmark transaction provided financing for eight soya producers within the central west region of Brazil and finances the cultivation of 14,455 hectares of soya (which should yield approximately 900,000 sacks). The CRA is backed primarily by the issue of rural credit notes (known by the Portuguese acronym CPR) issued by the soya producers. These represent a pledge to liquidate the loans by delivering an agreed amount of soya to the central offtaker within a contracted time period.The monitoring agents play an important role in providing an extra layer of comfort from the investors' point of view. NPK, Ecoagro's logistical operator is responsible for the actual physical delivery of the Soya to ADM.

Note: Brazil's Ecoagro has placed a landmark securitisation of agricultural receivables for soy producers and is aiming to find a suitable structure for foreign participation and the export market.

Issuer: Ecoagro

Lead Coordinator: Banco Fator

Custodian: Citibank

Registering Agent: CETIP

Rating Agency: LF Rating, Standard & Poor's

Monitoring: Cotecna

Legal Adviser: Barbosa, Mussinich & Aragao Advogados

Offtaker: ADM

Logistics Operator: NPKTrans Logistica em Agronegocios

Real Estate Appraisal: Setape

Fiduciary Agent: SLW

Eco Securitizadora de Direitos Creditorios do Agronegocio (Ecoagro) has placed the first securitisation of agricultural receivables for soya producers (hereon known by its Portuguese acronym, CRA). This landmark transaction provided financing for eight soya producers within the central west region of Brazil and finances the cultivation of 14,455 hectares of soya (which should yield approximately 900,000 sacks).

The R$17.3 million ($10.2 million) transaction was designed to both meet the financing requirements of soya producers and to provide a secure and well-structured method for private investors to provide this finance. The timeline and tenor of the transaction was designed around a single soya harvest, with funds being released in time for the producers to purchase their inputs and plant the crop in August and September 2010, and the anticipated settlement of the CRA being concluded in July of 2011. This gives enough time for the producers to harvest the crop in March and April, and for delivery to take place to the central offtaker. A recovery period' is embedded into the structure, giving a legal settlement in April 2012 in time for the securitisation company to execute guarantees in the event this is required.

The CRA is backed primarily by the issue of rural credit notes (known by the Portuguese acronym CPRs) issued by the soya producers. These represent a pledge to liquidate the loans by delivering an agreed amount of soya to the central offtaker within a contracted time period. The offtaker then sends funds to an escrow account at Citi to liquidate the CRAs. The CPRs are registered at the central clearing agent, CETIP and are backed by a fiduciary lien of real estate. This last part gives the local investor a lot of comfort as they have seen it working in the real estate securitisation market, where it has been very effective. In addition, the central offtaker has a secondary pledge on the soya crop and the producers themselves have also given a personal guarantee.

The monitoring agents play an important role in providing an extra layer of comfort from the investors' point of view. NPK, Ecoagro's logistical operator is responsible for the actual physical delivery of the Soya to ADM. Cotecna, the agricultural monitor, is responsible for assessing the lands being planted, and the progress of the crop up to harvest. SLW, the fiduciary agent has the role of monitoring all of the payments and to verify that things run in accordance with the paperwork. The role of Setape was to ensure that Ecoargo had an appropriate level of real estate as a fiduciary lien.

The challenges were: to ensure credit analysis had to be performed in a timely fashion, and be presented in such a way that it made sense to rating agents; the transaction had to be explained to the producers, as did the reasoning behind why such levels of guarantee were needed: and beyond that, demand from investors had to be ensured. There was also a tough deadline, because the planting season is a defined period and the producers need the funds in advance of that. All the parties involved in the transaction therefore had to work very closely together to make this happen.

Ecoagro is certain that CRAs will play a much larger role in the future in Brazil. This is the company's third CRA issuance, but it was the first to have public distribution. Ecoagro would like to do more and are examining a number of potential issues. The company is close to finalising a CRA for the sugar ethanol sector which should be the first to exceed R$100 million ($59 million), as well as looking at a one-year cotton CRA, and also another longer term CRA, likely to be three to four years, for a forestry company. In addition Ecoagro would like to design and issue a dollar-based CRA for offshore investors not as straightforward as issuing in the local market but the company is sure that it can be done. The objective is to find a sensible way that foreign investors can participate in an attractive structure.