Fitch Assigns Initial 'BB-' IDRs to Brazilian Finance & Subsidiaries

SAO PAULO & NEW YORK--()--Fitch Ratings has assigned the following ratings to Brazilian Finance & Real Estate (BFRE) and its subsidiaries, Brazilian Securities Cia. de Securitizacao (BS) and Brazilian Mortgages Cia. Hipotecaria (BM):

--Foreign and Local Currency Long-term Issuer Default Ratings (IDRs) 'BB-'; Outlook Stable;

--Foreign and Local Currency Short-term IDRs 'B';

--National Long-term Rating 'A-(bra)'; Outlook Stable;

--National Short-term Rating 'F2(bra)'.

BFRE's IDRs and its National Ratings reflect the integrated operation between group companies, which are well positioned throughout the increasing real estate financial market chain within the country, with clearly identified and well-controlled risks and managed by an experienced and conservative team. The ratings also consider its good credit quality and satisfactory performance. On the other hand, they take into account the recent operation of this growing franchise and concentration in the modest Brazilian real estate market with correlation with the risks inherent in the industry and BFRE's higher dependence on institutional funding and on favorable capital market conditions to finance all phases of its cycle.

BS and BM's are the same as those of its parent, BRFE, which reflects its strategic importance to the group's operations. The ratings also consider the centralized risk controls at BFRE where all group exposures are managed. Despite the strong synergy among group companies, shareholders grant autonomy to managers to implement day-to-day activities, and companies are structured to operate irrespective of the controller, both on a financial and on an operational basis.

BFRE's ratings could be impacted by a strong deterioration in credit quality and on the conditions to refinance the portfolio, which are unlikely over the medium term. In addition, a strongly negative performance of third party funds under management and of real estate receivable certificates (CRIs) issued could also affect the group's image. BS and BM's ratings are linked to those of BFRE.

Increasing economic stability and the creation of the Real Estate Financing System (SFI), in 1997, have offered better conditions for the expansion of the real estate market in the country, mainly due to higher legal comfort enabled by contracts guaranteed by fiduciary alienation of the property and new types of funding offered by the market, such as the securitization of receivables backed by real estate financings.

The volume CRIs issued in the market during the first half of 2010 (1H'10) was BRL3.2 billion (+98% as compared to 1H'09). Out of this total, BFRE, through its securitization company, holds a significant market share of 32%, showing its experience and access to local investors. In June 2010, the company recorded an accumulated balance of CRIs issued in the amount of BRL3.7 billion, fully without recourse and delinquency above 90 days of only 0.3%. Leverage of the loan portfolio generated by the real estate financing subsidiary and held in BFRE's balance sheet is low (only 3.1x net equity and around 1.0x the consolidated equity) with good credit quality (writeoffs of irrelevant 0.04% in 1H'10) due to the stringent credit process and guarantees (mainly on the property value), which are quite above the loan value. However, this is a relatively new portfolio (held in the balance sheet and securitized), which requires its credit quality to be monitored for a longer time.

BFRE has shown good access to the local market, although funding is reliant upon institutional investors. Market/liquidity risk is relatively low as the group maintains high levels of liquid assets, has adequately matched asset and liability rates and terms, and also benefits from non-recourse securitization. Operating risk is also low, while capitalization is high and presents good quality.

BFRE group is controlled by Ourinvest Real Estate Holding S.A., with 70.56% of the voting capital and 34% of the total capital. The remaining shares are held by two international investors. Fitch does not have information on shareholders' capacity and willingness to provide capital if needed, and thus, does not take into account their support to the group's companies.

Incorporated in 2000, BS, a securitization company, is a nonfinancial institution regulated by the Brazilian Securities and Exchange Commission (CVM). BM, in turn, was incorporated in 1999 and is a financial institution that mainly operates with construction financing to real estate developers and builders and for the acquisition of residential and commercial properties by individuals.

Additional information available at 'www.fitchratings.com' or 'www.fitchratings.com.br'.

Applicable Criteria and Related Research:

--'Short-Term Ratings Criteria for Corporate Finance', Nov. 2, 2010

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);

--'Rating Linkages in Nonbank Financial Subsidiary Relationships' (Nov. 29, 2010);

--'Rating Criteria for Securities Firms' (Dec. 30, 2009).

Applicable Criteria and Related Research:

Short-Term Ratings for Corporate Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

Rating Linkages in Nonbank Financial Subsidiary Relationships

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=577325

Rating Criteria For Securities Firms - Financial Institutions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493276

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Contacts

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Pedro Gomes, +55 - 11 - 4504-2600
Director
Fitch Ratings Brasil Ltda.
Rua Bela Cintra 904 - 4th floor
Sao Paulo, SP, Brazil
or
Secondary Analyst:
Jean Lopes, +55 - 21 - 4503-2600
Associate Director
or
Committee Chairperson:
Peter Shaw, +1-212-908-0553
Managing Director

Contacts

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Pedro Gomes, +55 - 11 - 4504-2600
Director
Fitch Ratings Brasil Ltda.
Rua Bela Cintra 904 - 4th floor
Sao Paulo, SP, Brazil
or
Secondary Analyst:
Jean Lopes, +55 - 21 - 4503-2600
Associate Director
or
Committee Chairperson:
Peter Shaw, +1-212-908-0553
Managing Director