(Updates with additional details on deal structure in paragraphs 6-11)
By Guillermo Parra-Bernal
SAO PAULO, March 16 (Reuters) - Brazilian financial technology company Creditas Soluções Financeiras Ltda tapped the asset-backed debt market to raise 50 million reais ($16 million) for auto loan refinancing, an area shunned by traditional lenders after soaring delinquencies.
The transaction, which took place in February, was the first in which Creditas fully decided collection and credit scoring procedures, Chief Executive Officer Sergio Furio said. Proceeds will go to refinance borrowers at a fraction of the cost of auto loans from banks, he added.
Creditas partnered with money manager Empírica Investimentos Gestão de Recursos Ltda to launch an investment vehicle bundling the securities, FIDC Empírica Creditas Auto. Local asset managers and family offices bought the senior and mezzanine portions of the FIDC, Empírica partner Leonardo Calixto said.
Creditas’ auto loan bet helps fill a void left by large- and mid-sized lenders, which partially exited that market five years ago after surging defaults. During that period, outstanding auto loans by Itaú Unibanco Holding SA, Brazil’s No. 1 bank by assets, shrank by about 70 percent.
Use of securitization could help fintechs fund loan origination more efficiently, potentially helping drive down Brazil’s borrowing costs, the highest among the world’s top economies. A dozen lenders dominate 90 percent of outstanding credit in Brazil, limiting competition.
Institutional investors from money managers to pension funds are increasingly eyeing fintech-oriented FIDCs, because of their longer maturities than more popular receivable-backed debt, low price volatility and the access they provide to a new asset class, Empírica’s Calixto said.
The asset manager, which oversees about 1.3 billion reais in credit investments, is currently analyzing a transaction that would bundle some of Creditas’ outstanding home equity loans into an FIDC, he said. The transaction could hit the local market by mid-year.
“Investors have understood the idea that a migration towards secured credit will eventually generate more credit underwriting volumes and origination efficiency,” Creditas’ Furio said. “They want to be a part of it.”
Currently, Creditas funds loan origination using capital from investors or through partnerships with traditional financial institutions. Its hybrid financing model allows it to originate loans using the borrower’s home or automobile as collateral.
Brazilian banks in recent months have turned their attention to how local fintechs are operating, after witnessing how peers in more mature markets were caught off-guard.
Fintechs represent a small portion of Brazil’s banking services, though segments such as credit cards, financial advisory and consumer lending are growing fast.
Secured personal credit accounts for 1 percent of Brazil’s outstanding lending, a sign large banks have overlooked a segment that could thrive as benchmark domestic interest rates approach single-digits.
Creditas could offer auto refinancing at monthly rates between 1.99 percent and 3.65 percent, corresponding to an annual rate of about 37 percent. Banks charge 120 percent annually for consumer loans.
Individual borrowers in Latin America’s biggest country pay an average 190 percent a year for unsecured overdraft, credit card and consumer loans with banks.
The junior, or subordinated tranche of the FIDC stayed with Empírica and Creditas, which hold equal parts of it, both executives said. Senior and mezzanine portions of an FIDC rank first in repayment order to investors ahead of subordinated tranches.
$1 = 3.1030 reais Editing by Daniel Flynn and Chizu Nomiyama