State Sales
The structure of a securitization would likely resemble those done previously at a state level, according to Daniela Jayesuria, a senior analyst and vice president at Moody’s in Sao Paulo. In 2012, the agency rated a transaction by the state of Minas Gerais, in which a company controlled by the state issued senior debentures guaranteed by the rights to receive a portion of collections on renegotiated taxes.
“They’re obviously trying to find other ways to advance on these future revenues,” said Jayesuria. “There’s been a lot of debate and question, especially whether those securitizations and those sales of receivables wouldn’t be considered as debt of the government.”
Brazil’s Senate may vote as early as this week on the bill authorizing the tax-debt sales.
"The revenue from the securitization wouldn’t solve the fiscal problem, but would give a breather for public finances," said Felipe Salto, a Brasilia-based economist specialized in public finances who helped draft the legislation while working for then-Senator Jose Serra, now the Foreign Minister, who oversaw a similar program while serving as governor of Sao Paulo state.
Belgium’s Aaa Sale
Separately, about a decade ago, Moody’s rated notes from Belgium tied to personal income tax, corporate income tax and penalties. Moody’s listed Belgium’s ability to collect when giving a follow-on tranche of the debt its highest Aaa rating in 2007.
Brazil isn’t Belgium, though, and the challenges of collecting unpaid taxes for proven deadbeats in the South American country could be daunting for investors. Given that risk, the government is unlikely to be able to get investors to pay more than the equivalent of 20 cents on the dollar for any tax debt it’s able to securitize, according to Robert Rauch, a money manager who helps oversee $5.8 Billion at Gramercy Funds Management LLC.
“I’m guessing that you don’t raise a lot of cash by doing this,” said Rauch, explaining that the cash-strapped government may not be able get as much as they think given the risk. “But, maybe that’s okay” given Brazil’s immediate need for money, he said.