Latin America Structured Finance Process
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Transcript of Latin America Structured Finance Process
December 2016
Confidential
LATIN AMERICASTRUCTURED FINANCE ADVISORS LLC
An Emerging Market Absolute Return Credit Strategy,With A Focus On Latin American Structured Credit Securities
1LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
THIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN LATIN AMERICA STRUCTUREDFINANCE ADVISORS, LLC (THE “COMPANY”). ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORSBY MEANS OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BYLAW. AN INVESTMENT IN THE COMPANY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FORWITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS ARE RESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TOCAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET FOR THE INTERESTS AND NONE IS EXPECTED TO DEVELOP. THEFEES AND EXPENSES CHARGED IN CONNECTION WITH THIS INVESTMENT MAY BE HIGHER THAN THE FEES AND EXPENSES OFOTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. NO ASSURANCE CAN BE GIVEN THAT THE COMPANY’S OBJECTIVEWILL BE ACHIEVED OR THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR PART OF HIS OR HER INVESTMENT. THECOMPANY’S RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.
This material contains certain forward-looking statements and projections regarding the future performance of the Company. These projections are includedfor illustrative purposes only. By their nature, forward-looking statements and projections are inherently predictive, speculative, and involve risk anduncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actualresults and developments to differ materially from those expressed or implied by these forward-looking statements and projections. No assurances can begiven that the forward-looking statements in this document will be realized. The Company does not intend to update these forward-looking statements. Theinformation contained herein regarding the Company is confidential and proprietary. By accepting this information, the recipient agrees that it will use theinformation only to evaluate its potential interest in the limited liability company interests described herein and for no other purpose and will not divulge anysuch information to any other party. This material and its contents are proprietary information of the Company and any reproduction of this information, inwhole or in part, without the prior written consent of the Company is prohibited.
The Company has obtained all information contained herein from public sources believed to be accurate and reliable. However, such information is presented“as is,” without warranty of any kind, whether express or implied. The Company makes no representation, express or implied, as to the accuracy, timeliness,or completeness of any such information. All expressions of opinion are subject to change without notice, and the Company does not intend to update theinformation contained herein. Results of certain comparative indexes and benchmarks are shown for informational purposes only. The Company’s investmentprogram does not mirror any index or benchmark shown and the volatility of the Company’s investment program may be materially different. All investmentsinvolve risk, including the loss of principal.
Disclosure
2LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Latin America Structured FinanceOur Strengths give us our Competitive Advantage
Combined Parties Provide U.S. Level Due Diligence
Advanced Structuring Tools – We Engineer Profitability and Risk Exposure
Legal and Economic Interests of All Parties Aligned
Transparent Data Converted to Useful Information
Probability-based Risk Analysis and Economic Pricing versus Book Value Accrual Accounting
Processing Efficiency Allows Greater Diversification and Liquidity in US Dollars
Structured for Accredited Investors qualified to evaluate private securities – historic risk-adjusted returns average 13% to 14% US$.
3LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Portfolio Management and Security Selection
4LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Latin America Structured Finance Advisors and PartnersOur Strengths give us our Competitive Advantage
U.S. Level Due Diligence
Advanced Structuring Tools – We Engineer Profitability and Risk Exposure
Legal and Economic Interests of All Parties Aligned
Transparency Converted to Useful Data
Probability-based Risk Analysis and Economic Pricing versus Book Value Accrual Accounting
Processing Efficiency Allows Greater Diversification and Liquidity in US Dollars
5LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Strong Brazilian PartnersOur Strengths give us our Competitive Advantage
Fifteen years of experience managing FIDCs
R$2.5 Billion under management, 82 Funds and 77 FIDCs
Average FIDC Size is R$34 million
Processing Efficiency Aids Risk Management
No failures because of fraud or poor management
Benford’s Law and Defaults
Loan-level data
6LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Developed Market ToolsOur Strengths give us our Competitive Advantage
Fifteen years of experience managing FIDCs
R$2.5 Billion under management, 82 Funds and 77 FIDCs
Average FIDC Size is R$34 million
Processing Efficiency Aids Risk Management
No failures because of fraud or poor management
Benford’s Law and Defaults
Loan-level data
7LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Superior StrategyHighly Diversified PortfoliosFIQ FIDC San Gabriel Strategy
FIDC Low RiskMany Small FIDCs
FIQ FIDC LASFA
Typical FIQ FIDC Strategy
FIDC High Risk
Specialized FIDC
FIQ FIDC X
8LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Investment Process – Applying Best Practices to Find Value
Due Diligence and Fundamental Credit Analysis
• Evaluate deal manager’s experience
• Thorough on-site inspection
• Verify deal managers not tied to shell companies
• Check deal manager transaction history
• Disciplined underwriting and servicing
• Decision structure well defined
• Fully analyze the collateral performance – must meet risk/return objectives
No – Deal Rejected
Deal Accepted – Move to Quantitative Testing
Yes – Passes All Tests:
Complete Cash Flow
Model
Interest Rate Paths and Default Scenarios
• Structure provides return/risk payoffs that beat the hurdle rate in the worst case scenarios
• Structure Provides Better Payoffs than other opportunities
No – Deal Rejected Yes – Passes All Tests Go to Portfolio Risk
Evaluation
Build Waterfall
and Triggers
Model-Driven
Quantitative Analysis
We integrate fundamental credit research with quantitative credit tools to arrive at buy decisions
9LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
ReturnEngineer Database –Provides Updated Deal
Information
Interest Rate Scenarios
Performance Reports & Data to
Investors
Continuous Performance Surveillance – Models are the Best Forensic Tools
Delinquency Scenarios from Vector
Auto-regression Model
Step 1: Periodic Due Diligence
Quarterly visits to servicers to verify that underwriting and servicing standards are being maintained (Evaluation by US and Brazilian Representatives)
Step 2: Modeling
The model uses our proprietary database, daily loan-level updates, and arbitrage-free interest rate scenarios to provide up-to-date information and consistent prices for the assets relative to the investor tranches
Monitor Actual versus Model Performance
Rules-based Cash Flow Engine(Waterfall)
PricingScenario Analysis
Benchmarks & Risk/Return
Profile
10LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Risk Management
11LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Evaluate the collateral and due diligence
Study all of the documents: By-‐laws and prospectus
Set up proprietary cash flow model and collateral assumptions
Run stochastic analysis on the FIDC
Monitor: Use the model results as a performance benchmark
Risk Management – Portfolio Management Process
12LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
LASFA Monitoring Reports
Portfolio Credit Analysis – Measures the total value of late payments and the breakdown of late payments versus provisions for bad debt
Portfolio Liquidity – measures the cash on hand and the cash due in 30, 90, 180, and 360 days
Credit Term Structure – Maturity ladder for the portfolio
Overcollateralization – Breakdown of overcollateralization that we link with our probability-based projections to estimate probability of survival
Portfolio Sector Breakdown – Composition of the credit portfolio by credit type
Breakdown of Delinquent Credit into Aging Buckets – static and time series analysis
Statistical Tests for Numerical Validity
Risk Management – Risk Tools – Static Risk Reports
13LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Brazil credit has been generating respectable returns after adjusting for defaults
Loan-level transparency with the big data tools to analyze exposures and provide meaningful information
Diversified portfolio of funds
Thorough due diligence process with the latest qualitative and quantitative models for managing risk
LASFA provides the tools to manage liquidity in US dollars and allows the Brazilian investment grow without liquidating the credit portfolio
Latin America Structured Finance Advisors SummaryModern Portfolio Management meets Inefficient and Unstructured Markets
14LATIN AMERICA STRUCTURED FINANACE ADVISORS LLC
Contact Details
Vernon H. Budinger, CFACEO
Latin America Structured Finance
710 S. Myrtle, #519, Monrovia, CA 91016
USA +1 626 664 9017
Brazil 5511 8674 7950
www.latamsfc.com