denotes premium content | Jan 6 2009 
Feature
posted 23 Feb 2005 in Volume 8 Issue 4
Sadia, Brazil: Pooled and covered – Brazilian export receivables find favour
MLA: Deutsche Bank
Borrower: Sadia, Brazil
Deal size: $100m
Tenor: one year
Signed in August, Deutsche Bank – as mandated lead arranger and facility agent – structured a one-year revolver for Sadia, one of Brazil’s largest food producers, which brought structured-finance techniques to a Latin American market far more used to plain-vanilla export financings. The deal involved syndicate participants purchasing pools of short-term export receivables arising from Sadia’s sale of poultry, meat and processed-food products to buyers throughout the Americas, Europe, Asia, the Middle East and Russia. Some 90% of the nominal value of the receivables was covered by a credit insurance policy provided by global-trade and political-risk insurance provider American International Group (AIG).
This unique piece of structuring for the Brazilian market enabled banks to purchase the receivables to buyers under special discretionary limits based on Sadia’s exporting track-record – with Sadia retaining recourse on the uncovered portion of the receivables.
The deal was an extension of the successful 2003 receivables facility, although almost double the size – from $55m in 2003 to $100m for the 2004 facility.
“While the success of the 2003 deal certainly made us bolder with respect to the facility size, it was not the core reason the deal size nearly doubled,” says Carl Carrier, director of global trade finance at Deutsche Bank in New York. “That was due to the exponential rise in poultry exports by Sadia. Poultry production has doubled in three years, with exports now worth $1bn. Export growth has been particularly strong as a consequence of a decline in Asian production, due to concerns such as avian flu. In this respect, the facility provides important assistance to Sadia – in its strong expansion of export sales – while being structured as mostly AIG risk with recourse back to Sadia for the uninsured residual.”
Certainly, the market found the deal attractively structured, with HSBC and Fortis Capital coming in as arrangers and ABN Amro, Banco Santander Central Hispano New York branch and Banco de Credito del Peru coming in as co-arrangers. A total of 16 European and Latin American institutions participated in the facility as purchasers of Sadia’s export receivables.
“The deal was broadly syndicated,” says Carrier, “with many of the participants happy to buy into a structure they understood but had not seen widely applied in this region.”
Yet the structure’s benefits were not all to aid syndication. The use of the receivables sales programmes has allowed Sadia to reduce its cash-conversion cycle – from 105 days in 2002 to 81 days in 2003. Also, the AIG insurance policy enables Sadia to establish credit limits for its buyers using its own credit approval criteria. This improves the company’s receivables risk profile and allows more favourable sales terms to be offered to longstanding buyers. And a further advantage for Sadia is the fact the receivables discounted under the facility are accorded true-sale treatment, enabling the company to improve balance sheet management – further boosting liquidity.
Sadia ranks as one of Brazil’s largest exporters and one of the most recognised names in Brazil.
“Sadia is certainly one of Brazil’s most innovative names,” says Carrier. “And the perfect name for introducing such a structure into the Brazilian market.”
