Providence Exec Memo Brazilian Factoring 2012

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An alternative fixed income solution specializing in the factoring of receivables in Brazil.

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Providence Exec Memo Brazilian Factoring 2012

  1. 1. ExecutiveMemorandumGeographic BrazilFocus:Business FactoringFocus:Corporate Brazilian LTDAFormation: & Delaware Corp. SUMMARY:Transaction Short-TermProfile: Note This is a formal presentation of the ProvidenceInterest Rate: 12.0% per annum Fixed Income Fund (“the Fund”) to assist prospective investors in the evaluation of personalMinimumAmount: US$ 100,000 financial decisions. The fund has been structured around the Brazilian Factoring Market taking intoFor More Information, Contact: consideration the favorable differences currently existing between the interest rate markets of theThe Providence Companies United States and Brazil. The result is thatUSA Office Providence Companies has been able to develop a240 Crandon Boulevard smart high yield investment instrument where theSuite 228 amount of risk in the investment is proportionallyKey Biscayne, Florida 33149T | 786.866.5824 less that the favorable high ROI actuallyF | 866.850.2522 experienced. This fund is the ideal vehicle to invest in one of the strongest economies of theBrasil Office world today and enjoy the high interest ratesRua Fidencio Ramos 223 prevailing in the country for the last several years.Suite 74Edificio Palladio Since this is expected to continue in the future, bySao Paulo, Brasil investing in the Fund, investors are able to tapCEP 04551-010 into the high yield Brazilian money markets forT | 55-11-3044-5353 short periods not exceeding nine (9) months at aAntonio Buzaneli time.Managing DirectorT | 305.469.5568 Background on the Providence CompaniesE abuzaneli@provcos.com The Providence Companies (“Providence” or the “Firm”) is an investment management firm focusing its investments in Brazil,more specifically the sectors of financial services, commercial paper, factoring, diversifiedtransportation, trade and trade receivables (or “the Sector”). The primary objective of the Firm is tocreate significant capital appreciation for its investors by buying high quality negotiable instrumentsat a discount. For that purpose Providence has a Brazilian subsidiary duly authorized as a financialinstitution to purchase negotiable instruments in the open factoring market. Such instruments arepurchased at a discount of approximately four (4%) per cent per month (or 48% annualized) allowingsignificant gross markings to the Firm, being this the main reason why the proposed ROI is possiblefor our investors.
  2. 2. Factoring in BrazilExecutive Factoring, known in Brazil as ‘Fomento Mercantil,’ is a serviceMemorandum activity that includes ongoing advisory work on credit, risk, accounting, inventory, and working capital management, inGeographic Brazil tandem with the irrevocable purchase of credit rights, in the formFocus: of receivables that arise from the sale of goods or services with maturities ranging from 30 to 300 days. The factoring companyBusiness Factoring assumes the credit risk associated with the negotiableFocus: instruments, which has remained historically low for the last 10 years due to the severe penalties existing for defaulted credits.Corporate Brazilian LTDAFormation: & Delaware Corp. Factoring must be based on commercial sales and is governed by Brazil’s Civil Code. It can be conducted only with ‘legal persons’Transaction Short-Term or enterprises and not with individuals. The most commonProfile: Note accounts receivable are duplicatas (commercial invoices), which account for almost 90 percent of all factoring receivables. OthersInterest Rate: 12.0% per annum are checks, bills of exchange, bills of lading, warrants, promissory notes, and post-dated checks (which can be issued to coverMinimum mercantile sales, as in commonplace in Brazil).Amount: US$ 100,000 There are over 700 known factoring companies in Brazil, which provide services to more than 65,000 small and mediumFor More Information, Contact: enterprises. Eighty percent of these enterprises belong to theThe Providence Companies industrial sector, with a monthly turnover of around US$10 billion (R$27 billion) as creditor rights resulting from mercantileUSA Office sales, representing approximately 6 percent of all domestic240 Crandon Boulevard sources of financing. Factoring companies had more than 6,000Suite 228 employees and were estimated to provide another 710,000Key Biscayne, Florida 33149 indirect employment opportunities. Thus, factoring is a sizeableT | 786.866.5824 industry in Brazil and an important source of finance for aF | 866.850.2522 number of firms. Overall delinquency ratio for receivables is estimated to be around 3.8 percent across all sectors.Brasil OfficeRua Fidencio Ramos 223 Key PointsSuite 74 Factoring is an important alternative to the banking sector for theEdificio Palladio financing of small and medium enterprises. Given difficulties ofSao Paulo, Brasil entry into the formal banking system, factoring companies haveCEP 04551-010 found an important market niche.T | 55-11-3044-5353 Factoring companies work at a much smaller scale than banks, inAntonio Buzaneli close association with their creditor. Accounts receivables areManaging Director already expected cash flows and, thus, a company eliminates itsT | 305.469.5568 clients’ business risks through factoring.E abuzaneli@provcos.com Factoring enables quick and relatively inexpensive access tofinancing by Brazilian standards. While an interest rate of 48% per year in any loan product isconsidered totally unacceptable in the United States, ironically, it is considered in Brazil the mostinexpensive financing alternative available in t he market to the average borrower. Alternatives suchas bank credit based on the discount of invoices as well as bank credit in the form of personal orconsumer overdraft facilities are much more expensive. Providence is a licensed factoring company in Brazil and member of by ANFAC (Brazil’s national trade association covering all factoring companies in the country), specifically the only foreign entity that holds such membership in Brazil due to Providence’s excellent reputation, past operating history in Brazil and solid financial references. BPA Fomento Mercantil Investimientos e Participações,LTDA is the wholly owned subsidiary of Providence Companies and operates the factoring businessfor the Fund.
  3. 3. Executive MemorandumBrazil Markets - Current OutlookMarket Conditions During the 1990s, the Brazilian economy did not experience the same level of robust growth as other major emerging economies like India, Russia and China. Beginning shortly after the settling of global economic changes and the election of Luiz Lula Da Silva in the 2002 Brazilian presidential elections, the Brazilian economy has gradually risen to achieve consistent growth and a development cycle of significant investments. As the largest and most populous country in South America, the eighth largest economy in the world and the fifth largest country in the world in both area and population, Brazil is well-positioned for continued growth. Note that the above mentioned highlights clearly depict a scenario of economic stability with excellent growth experience and additional growth projected for the future. The nation has well-developed manufacturing, mining, agricultural and service industries, as well as a large labor pool. Brazils macroeconomic fundamentals are currently very strong, and both the long and short-term outlook for the country are positive. Brazil has an increasing balance of payments surplus, continued government commitment to fiscal discipline and inflation control, increasing export volume growth, decreasing interest rates and strong foreign direct investment, all of which are expected to strengthen the economy. Add to those fundamentals the fact that in 2007, Brazil discovered the world’s largest offshore oil reserves off the coast of Rio de Janeiro, makes Brazil fulfill the prophesy of being the country of the future. The future has reached destination in Brazil, as well said by The Economist in November 2009, "Brazil Takes Off" (shown above). 3
  4. 4. Executive Memorandum Economic Impact of Sports in the Next Five YearsFIFA World Cup 2014 In 2010, Brazils Ministry of Sports of issued a study on the economic impacts of achieving the 2014 World Cup showing that the tournament should add to the Brazilian economy about US$105 Billion. There will be directly invested US$27 Billion in infrastructure, tourism and consumption while the indirect investment is estimated at US$78 Billion from the recirculation of money from the event. The impact on infrastructure alone is US$18.7 Billion and 78% of investments will come from the public sector, aimed at stadiums, urban mobility and the reform of ports and airports. Other areas that will receive funds include telecommunications, energy, health, safety and hospitality. Only to tourism, the World Cup in 2014 should generate US$ 5.3 Billion. During the World Cup on June and July, the country should receive 600,000 foreign tourists, besides the 3.1 million Brazilians who will travel the country. This number is equivalent to two thirds of the population of Rio de Janeiro. The World Cup is also expected to generate about 710,000 jobs in Brazil out of which 330,000 thousand will be permanent and other 380,000 temporary.Olympic Games 2016 An Olympic Games Committee survey, carried out by Credit Suisse estimates a R$30 Billion financial input over the next five years. The Brazilian Ministry of Sport however, foresees an overall fund injection of around R$90 Billion, taking into account indirect investments and their long-term effects. The largest sporting event in the world is predicted to exert such a strong influence over many Brazilian investors and workers’ lives too. The estimated impact on the Gross Domestic Product from 2009 to 2016 stands at approximately US$11 Billion. The Ministry’s study was developed by the Fundação Instituto de Administração, and it is based on the budget amounts requested by the Rio de Janeiro Olympic Committee. This huge financial injection will benefit several different entities: US$2.8 Billion will fund the Brazilian Olympic Committee, the organizers of the Games, and the remaining US$11.6 Billion will finance public and private entities for the construction and repairs of Olympic Games infrastructures such as stadiums, sports pitches, water sports venues and also roads and subway stations. Now consider the estimated 4.26 production multiplier, which will inject US$51.1 Billion from 2009 to 2027. 4
  5. 5. Executive Memorandum Proposed Investment OpportunityInvestment Vehicle The proposed investment opportunity consist in an unrated commercial paper instrument in the form of a promissory note between the investor ("the Holder") and Providence Financial Investments, Inc. ("the Issuer"). Providence is registered in the State of Delaware, operates from its offices in Key Biscayne, Florida, a carries its financial business with bank accounts at Bank of America. Summary of Terms & ConditionsIssuer Providence Financial Investments, Inc.Amount Minimum of US$ 100,000.00Interest Rate 12 % per Annum, computed on the basis of a 360-day year.Interest Payments Payable monthly on the 20th of the month, subsequent to the month where the interest is accrued.Term 365 Days or 730 DaysEarly Maturity Provided certain required prior notices, funds can be released as early as 270 days but resulting in a reduced yield of six (6%) percent per annum.Use of Proceeds The proceeds of the Note shall be used for the sole purpose of providing working capital in the form of an intercompany loan to the Issuer’s Brazilian Subsidiaries or its affiliates which will use the proceeds of the loan to acquire receivables or financial instruments such as post dated checks and/or Duplicatas in the Brazilian Factoring Market. The Issuer, and its subsidiaries, or affiliates at their sole discretion will decide the allocation rates, discounts, price acquisition, timing, and conditions of such acquisitions.Payment Modes: Monthly interest payments and principal payments can be arranged to be made by either company check to a physical address, or a wire transfer to Holders bank account.Identification Individual holders and/or company representatives must provide copies of passport and drivers license upon execution of the Note.IRS Interest income will be reported to the Internal Revenue Service for individuals and Form 1099 will be issued for income tax purposes at the beginning of each fiscal year.Key Definitions “Effective Date” shall mean the same business day when the amount that originates this note received by the Issuer from the Holder, becomes free and clear available funds at the Issuers bank account in a bank in the United States. “Maturity Date” shall mean shall mean the last Business Day of the term of this Note or the next Business Day, if the Maturity Date does not fall on a Business Day. 5
  6. 6. Executive MemorandumFactoring Tutorial : The Concept, the History, the Financial ProductWhat is Factoring? Factoring is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways: (i) the emphasis is on the value of the receivables (essentially a financial asset), (ii) factoring is not a loan – it is the purchase of a financial asset (the receivable), and (iii) a bank loan involves two parties whereas factoring involves three. The three parties directly involved are: the one who sells the receivable, the debtor, and the factor. The receivable is essentially a financial asset associated with the debtors liability to pay money owed to the seller (usually for goods sold). The seller then sells one or more of its invoices (the receivables) at a discount to the third party, the specialized financial organization (the factor), to obtain cash. The sale of the receivables essentially transfers ownership of the receivables to the factor, indicating the factor obtains all of the rights associated with the receivables.History of Factoring Factorings origins lie in the financing of trade, particularly international trade. Factoring was underway in England prior to the year 1400. It is closely related to early merchant banking activities and the Venetian trade model developed during the Middle Ages. Like all financial instruments, factoring evolved over centuries. This was driven by changes in the organization of companies; technology, particularly air travel and non-face to face communications technologies starting with the telegraph, followed by the telephone, the fax, and the internet. English common law originally held that unless the debtor was notified, the assignment between the seller of invoices and the factor was not valid. The Canadian Federal Government legislation governing the assignment of moneys owed by it still reflects this stance as does provincial government legislation modelled after it. As late as the current century the courts have heard arguments that without notification of the debtor the assignment was not valid. In the United States it was only in 1949 that the majority of state governments had adopted a rule that the debtor did not have to be notified thus opening up the possibility of non-notification factoring arrangements. Now non-notification is widely accepted in major economies such as Brazil. By the twentieth century in the United States factoring became the predominant form of financing working capital for the then high growth rate textile industry. In part this occurred because of the structure of the US banking system with its myriad of small banks and consequent limitations on the amount that could be advanced prudently by any one of them to a firm. In South Florida, it fueled trade finance to Latin America in the 80’s and 90’s. In the latter half of the twentieth century the introduction of computers eased the accounting burdens of factors. The same occurred for their ability to obtain information about debtor’s 6
  7. 7. Executive Memorandum creditworthiness. Introduction of the Internet and the web has accelerated the process while reducing costs. Today credit information and regulatory controls are in effect any time of the day or night on-line. Brazil has the most advance and controled check processing system in the world. Their POS systems provide background and activity information on the check writer to such an extent that in many countries it would be a violation of privacy laws. But then again, Brazil’s total national default rate on checks is less than 2%.The Factoring The use of factoring to obtain the cash needed to accommodate theBusiness firm’s immediate Cash needs will allow the firm to maintain a smaller ongoing Cash Balance. By reducing the size of its cash balances, more money is made available for investment in the firm’s growth. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its "customers bank." Accordingly, Factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with Factoring the Receivables. Therefore, the trade off between the return the firm earns on investment in production and the cost of utilizing a Factor is crucial in determining both the extent Factoring is used and the quantity of Cash the firm holds on hand. If cash flow can decrease drastically, the business will find it needs large amounts of cash from either existing Cash Balances or from a Factor to cover its obligations during this period of time. Likewise, the longer a relatively low cash flow can last, the more cash is needed from another source (Cash Balances or a Factor) to cover its obligations during this time. As indicated, the business must balance the opportunity cost of losing a return on the Cash that it could otherwise invest, against the costs associated with the use of Factoring. This is expecially the case with the current economic boom in Brazil whereby being temporarily “out of the market” because of cash flow product cycles can cost a firm valuable growth because of the collection lag by not utilizing factoring. Factors make funds available, even when banks would not do so, because factors focus first on the credit worthiness of the debtor, the party who is obligated to pay the invoices for goods or services delivered by the seller or on the regulatory regime that limits risks associated with collection losses, as in the case in Brazil. In contrast, the fundamental emphasis in a bank lending relationship is on the creditworthiness of the borrower, not that of its customers. While bank lending is cheaper than factoring, the key terms and conditions under which the small firm must operate differ significantly. From a combined cost and availability of funds and services perspective, factoring creates wealth for some but not all small businesses. For small businesses, their choice is slowing their growth or the use of external funds beyond the banks. In choosing to use external funds beyond the banks the rapidly growing firm’s choice is between seeking venture capital (non existant in Brazil) or the lower cost of selling invoices to finance their growth. The latter is also easier to access and can be obtained in a matter of a week or two, whereas securing funds from venture capitalists can typically 7
  8. 8. Executive Memorandum take up to ten months. While factoring is an attractive alternative to raising equity for small innovative fast-growing firms, the same financial technique can be used to turn around a fundamentally good business whose management has encountered a perfect storm or made significant business mistakes which have made it impossible for the firm to work within the constraints of their bank covenants. The value of using factoring for this purpose is that it provides management time to implement the changes required to turn the business around. The firm is paying to have the option of a future the owners control.Factoring in Brazil For the past four (4) years, Providence Companies has been factoring receivables in Brazil for the following sectors:  Consumer Receivables via Post-Dated Checks at the Point of Sale  Family Healthcare via General Practitioner Consumer Receivables  Pre-Export Financing for Commodity Trade Companies  Industrial Receivables for sales to Brazilian Government and large corporations Post Dated Checks: A habit dating from Brazil’s inflationary years in the 1980’s, when consumer credit was virtually nonexistent, post- dated checks became the norm and the country’s system evolved to monitor and regulate this form of nationally accepted payment. In Brazil, the national average of bad checks (non sufficient funds or NSF’s) is less than 2% as published by ANFAC, the National Trade Association of Factoring Companies. The reason for such a low loss rate, albeit half of the 2% end up rectifying and making good on their checks, is Brazil’s sophisticated and unforgiving system for dealing with NSF’s. Key components of Brazil’s regulatory environment with regard to checks include:  In Brazil, the bank controls how many checks the account holder is issued on a monthly basis concurrent with the account holders credit rating, banking history and income;  In Brazil, writing 10 separate checks of $100, one per month, to pay for a $1,000 retail item is a nationally accepted method of payment at major stores. Supermarkets and shopping malls for 8
  9. 9. Executive Memorandum everything from plasma TV’s and laptop computers to groceries all accept post-dated checks to get their business going. In the above example, shortly after the sale, the retailer sells the 10 post-dated checks to a factoring company for approximately $820, which is the desired cash price of the retailer, profit included. The other $180 will be the cumulative interest income earned by the factoring company as checks mature over the 10 month period. Discounted at 4% per month, factoring companies make 48% return on the money as normal course of business.  Each check is bar coded to provided valuable and key information to the vendor at the point of sale on the account holder, such as any negative banking history, credit rating, volume and average amount of checks written, etc  In Brazil, if an individual bounces a check twice, their accounts at every single banking institution in the country is closed within seven (7) business days, including any business accounts on which the individual has signing authority. They also lose their priveledge to open an account at any bank for a period of five (5) years. Basically, bouncing a check in Brazil has severe financial consequences to the issuer. This explains the very low default rate on Brazilian checks. Duplicatas: These are irrevocable trade bills or a certified and negotiable copy of an invoice. Long before Brazil’s banking system went electronic, businesses entrusted their receivables to banks for collection. This Brazilian and Portuguese system differs from what is considered standard in most countries. Most enterprises "vendem a crédito" (sell on credit). Crédito entails cobrança (collections). The oldest system of collection is sending a cobrador to the customer with the fatura (invoice) in hand. Alternatively, you could have the customer go to your place to pay. This is called cobrança em carteira (direct collection). If the customer was in a different city, this did not work, so people began to send a duplicata (a duplicate of the invoice) to their customers and instruct them to pay the bill to a specified bank. Then, they began to send the bills directly to the bank with a borderô (listing) and instruct the bank to mail the bills to the customers, collect the payment, stamp the duplciata PAID and transfer the payment to the creditor. The system was extended nationwide and is now known as Duplicatas in conducting daily business. Providence holds in custody both Post-Dated Checks and Duplicatas purchased at a discount (factored receivables) from vendors, health practitioners, and companies. These are held at the local level and are presented for payment at maturity of the instrument. The Providence Fixed Income Fund pays its Holders an 12% annual yield, or one (1%) percent per month. The Fund covers its cost of local operations, collections and makes a profit from the current market spread at the local level. There is no management fee and no costs or commissions, a straight monthly payout of 1% per month for a 365 day note. Pre-Factoring - A step further in the factoring business is to participate at a deeper level in the transaction that originates the Duplicata. Since the factoring company has decided to purchase a 9
  10. 10. Executive Memorandum Duplicata issued by a given client, they advance the necessary funds to purchase in the foreign country, the merchandise that would eventually be shipped to the importer that originates the Duplicata (the client). Then becomes the foreign exporter that ships to its client locally making an additional profit margin in the price of the merchandise sold. Such investment is immediately converted into a Duplicata instrument upon delivery of the goods, when it starts to accrue interest at 4% per month. In this way factoring companies obtain additional income with the same cash investment. ANFAC ANFAC stands for "Associação Nacional das Sociedades de Fomento Mercantil" (www.anfac.com.br) which is the 29 year old national trade association that groups over 720 factoring companies in Brazil. It was founded in 1982 with the objective of disseminating the promotion of commercial activity in Brazil. Throughout these years, the institution has established standards of conduct and acting in Congress to defend the interests of the sector, contributing to the elaboration of legislation regulating the activity in the country. With the consolidation of the segment now generating around $ 50 billion per year, ANFAC lobbies for passage of legislation to improve the legal environment of the factoring industry in Brazil. ANFAC is a non-profit organization that groups the factoring companies that operate in the market buying and selling credit- market services to industrial and retail. They also assist in the negotiations between factoring companies and their customers. It also acts as a court of arbitrator in disputes between its members, and ensures compliance with ethical standards of self-regulation by the factoring companies. Providence is a licensed ANFAC member, specifically the only foreign entity that holds such a license in Brazil. Due to the deeply Brazilian nature of the factoring practices, 10
  11. 11. Executive Memorandum they are little known elsewhere and no foreign company had previously identified the opportunity of tapping into a receivables market with the extremely effective Brazilian style of government controls and regulations applicable to defaulted commercial or personal checks / Duplicatas. BPA Fomento Mercantil, Investimientos e Participações Ltda is the wholly owned foreign subsidiary of Providence Companies that operate the factoring business locally.Understanding How a Low Risk 12% ROI is Possible ? In the post-Maddoff & Stanford world we live in today, one must address coupons in excess of the depressed market rates paid in the recession rampant U.S. economy. To the unsophisticated, domestic U.S. investor, if the return is 12% per year, then it is assumed it is a high risk investment, right ? Actually the answer is ‘No’ and this section goes over why by first comparing U.S. benchmark rates versus Brazil benchmark rates.Benchmark Rates The benchmark interest rate is the lowest interest rate that an investor will accept for a non-Treasury investment. The benchmark interest rate is tied to the interest rate offered on the most recently-issued (on-the-run) Treasury security. Since it is generally possible for investors to find investments paying a greater rate than the benchmark interest rate, one of the hallmarks of an investment which pays the benchmark interest rate is safety. The benchmark interest rate is often associated with conservative and safe investments. The benchmark interest rate in the United States was last reported at 0.25 percent. In the United States, authority for interest rate decisions is divided between the Board of Governors of the Federal Reserve (Board) and the Federal Open Market Committee (FOMC). The Board decides on changes in discount rates after recommendations submitted by one or more of the regional Federal Reserve Banks. From 1971 until 2010 the United States average interest rate was 6.45 percent reaching an historical high of 20.00 percent in March of 1980 and a record low of 0.25 percent in December of 2008. Note that the interest rate paid by banks in the United States to its depositors are tied to the United States benchmark rates. A Certificate of Deposit in the US in April 2011 can produce, say 1% per year in Bank of America. 11
  12. 12. Executive Memorandum By the same token, Brazil’s benchmark rate is not 0.25% but instead 11.25%. A Certificate of Deposit in a Banco Itau or Banco Safra would earn 12.5% a year. Brazil had controlled its inflation for the past decade with high interest rates (to be discussed in more detail in the following pages).Low Risk Premiums An 12% return is a high return commensurate with high risk in the United States market. However, in Brazil, its considered low to moderate low risk. In the United States, an investment that yields 12% is assumed to carry a 11.75% risk premium (12% less 0.25%). In Brazil, however, 18% minus Brazil Benchmark 11.25% equates to a 6.75% risk premium. Comparing apples to apples, investing in the United States in factoring for a risk premium of 6.75% plus 0.25% benchmark results in a total return of 7% a year. Seven percent per year in the United States is indicative of low to moderate low risk comparable to buying commercial paper from a Fortune 1,000 company. This explain how the Fund can pay 12% per year to its Holders under a low to moderate risk product structure. The Fund does not incur in high risk transactions, the high yield is just the result of the large differences currently existing between the two economies. Why isn’t everyone else investing in Brazil ? The answer is simple: They are. However, most people only have access to Brazil through Emerging Market Mutual Funds issued by national and international institutions. Providence Fixed Income Fund is another alternative but offers better returns as this Fund does not carry high commissions, tax inefficiencies, fees, etc. In Numbers:  1.3 Billion checks processed through the banking system.  This represented approximately US $580 Billion  Approximately 43% of these were post dated.  Less than 2% of processed and cleared checks are returned (NSF) 12
  13. 13. Executive MemorandumProvidence Companies ManagementAntonio Buzaneli Antonio Buzaneli brings 27 years of experience in creating & growingManaging Director businesses, with a deep expertise in operations, global trading, expansions and consolidation. Mr. Buzaneli has worked in a variety of different industry verticals, including development & construction, retail consumer goods, wholesale distribution, finance, commodities, agriculture & fisheries, and manufacturing. Mr. Buzaneli has founded and grown companies with international operations, from inception to multi-million dollar revenues, through a broad knowledge of finance, risk management and distribution structures. Mr. Buzaneli has served in several executive positions including CEO, President, COO, and Country Manager for various international companies, including one of the largest distributors of dried marine products in the world. He has been involved in all aspects including pre-revenue strategy, through successful startup and operation – including capital acquisition, corporate structure & governance, executive selection & team building, organization establishment, product optimization, building sales & distribution channels, vertical integration, highly structured finance & acquisitions, supply chain creation & management, and international trading integration & optimization. Mr. Buzaneli brings a deep strategic perspective to organization development, including the identification of brand new opportunities, segments and possible paths for future sustainable growth. Mr. Buzaneli holds a law degree from Anchieta Law School in Brazil, as well as a Harvard Business School executive management course with specialization in international trade & finance. He has multicultural experience & is multilingual – English, Italian, Portuguese and Spanish – enabling him to integrate cultural differences to help focus deliverable results. Married, a father of four and a grandfather, Antonio is highly involved in church activities and devotion, believing in the motto that “true leadership is achieved through service”. He enjoys recreation time with his family and friends, martial arts, and marine sports.Jose Ordoñez Jose M. Ordoñez brings 16 years of experience in the Banking, Real EstateManaging Director and International Trade verticals. Mr. Ordoñez began his career as a credit analyst with a regional bank in Miami, Florida. Within a few years, he rose to become Vice President in the Corporate Lending Division. Throughout his long-standing financial career, he structured and provided term financing, fixed income products, credit lines, construction loans, land acquisition, general real estate lending and co-directed and expanded the Small Business Lending Group (SBA). He generated approximately $150 million dollars in new loans while employed by the bank. In 2003, Mr. Ordoñez was recruited as the Vice President of Finance for a major tobacco growing conglomerate in Miami, one of the largest tobacco leaf growers worldwide. Their distinguished client list included, multinational brands, such as Consolidated Cigar, General Cigar, Altaldis and Imperial. Among his responsibilities were developing new banking relationships as well as organizing, developing and implementing new structured financial 13
  14. 14. Executive Memorandum products for the firm. He also led the group to create a platform for ancillary business development. Fueled by his extensive experience in commercial finance, real estate, marketing and the banking industry, in early 2005, Mr. Ordoñez was asked to lead a rapidly growing local commercial real estate development company. He was responsible for increasing the revenue from $15 Million annually to approximately $350 Million annually in a period of 32 months. Concurrently, Mr. Ordoñez led the restructuring of all the banking, legal and investment relationships, improving the overall financial health of the entire enterprise. At its peak, under the leadership of Mr. Ordoñez, the company went from a local presence to a regional Southeastern United States presence with over 30 active projects. Mr. Ordoñez graduated from Florida International University with a Bachelors Degree in Finance & International Business. He is multilingual – English, Portuguese and Spanish. He is married, is a father of two and is very active in his church and community. He enjoys spending time with his family and friends, and is an avid sports participant and fan.Julio E. Rivera Mr. Rivera has over 28 years experience in banking covering multipleManaging Director disciplines. During his banking career Mr. Rivera developed advanced expertise in real estate lending, focusing on construction project financing and corporate banking. He worked at Citibank, N.A., Royal Bank of Canada, Chase Manhattan Bank, and most recently 11 years at FirstBank Puerto Rico, an Institution with $18 Billion in assets. At FirstBank, Mr. Rivera headed the Construction Financing Division in Puerto Rico and his group provided the industry credit approval for all construction loans including those from the U.S. and the British Virgin Islands as well as from FirstBank’s Florida Division in the U.S. During this time Mr. Rivera gained vast experience in the execution and control of highly complex real estate transactions, contract negotiations, business presentations, staff management, court litigation, as well as being designated as an expert witness over the years. Mr. Rivera then moved on and partnered with close associates to create a new company dedicated to high-impact workshops for self-help human transformation in Puerto Rico providing both capital and management expertise. Additionally, Mr. Rivera invested in and became executive producer of a film production in Montreal, Canada. He is working on the movie project currently in its development stage. The project is unique and has tremendous expectations given the potential social/political impact it may create on a global basis. Given his diversified background, Mr. Rivera continues to seek opportunities and associations in multiple business ventures where he can fulfill personal visions and lifelong missions. Mr. Rivera is a Magna Cum Laude from the University of Puerto Rico where he obtained a Bachelor Degree in Business Statistics and was awarded by the government of Puerto Rico, Economic Development Administration among hundreds of qualified participants, with a full scholarship for post graduate work. With this opportunity, Mr. Rivera completed a Master of Science in Operations Research and a Master in Business Administration with a major in Management Science. 14
  15. 15. Executive Memorandum S.E.C. COMPLIANT DISCLAIMERTHIS INVESTMENT PRODUCT HAS NOT BEEN REGISTERED AND WILL NOT BE REGISTERED UNDER THEU.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANYJURISDICTION. THIS PRODUCT MAY NOT BE OFFERED, SOLD, HYPOTHECATED, GIVEN, BEQUEATHED,TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF (“TRANSFERRED”)EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO THIS NOTE THAT IS EFFECTIVEUNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION FROMREGISTRATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAW RELATING TO THEDISPOSITION OF SECURITIES, PROVIDED THAT AN OPINION OF COUNSEL IS FURNISHED TO THE COMPANY,TO THE EXTENT REASONABLY REQUESTED BY THE COMPANY, IN FORM AND SUBSTANCE REASONABLYSATISFACTORY TO THE COMPANY, TO THE EFFECT THAT AN EXEMPTION FROM THE REGISTRATIONREQUIREMENTS OF THE ACT AND/OR APPLICABLE STATE SECURITIES LAW IS AVAILABLE._________________________________________________________________________________ www.provfinancial.com www.provcos.com Providence Companies (Miami) Providence Companies (Sao Paulo) 240 Crandon Blvd Rua Fidencio Ramos 223 - Suite 74 Suite 228 Edificio Palladio Miami, FL 33149 Vila Olimpia, SP Brasil 04551-010 15
  16. 16. Executive Memorandum APPENDIX Brazil Economic Outlook 2012The Economic Success Story of BrazilThe Problems of the Through the 1980s and 1990s, the Brazilian economy suffered from1980s rampant inflation that subdued economic growth. After several failed economic initiatives created by the government to consistently control inflation (some plans brough inflation to zero in the short term, but was unsustainable over the medium term), in 1994 the Plano Real was introduced. This plan brought stability and enabled Brazil to sustain economic growth over that of the global economy through the coming decade. The Plano Real (Real Plan, in English) was a set of measures taken to stabilize the Brazilian economy in early 1994, under the direction of Fernando Henrique Cardoso as the Minister of Finance, during the presidency of Itamar Franco. According to economic academics, one of the causes of inflation in Brazil was the inertial inflation phenomenon. Prices were adjusted on a daily basis according to changes in price indexes and to the exchange rate of the local currency to the U.S. dollar. Plano Real then created a non-monetary currency, the Unidade Real de Valor ("URV"), whose value was set to approximately 1 US dollar. All prices were quoted in these two currencies, cruzeiro real and URV, but payments had to be made exclusively in cruzeiros reais. Prices quoted in URV did not change over time, while their equivalent in cruzeiros reais increased nominally every day.The Solution The Plano Real based its actions on an analysis of the root causes of inflation in the post-military dictatorship Brazil that concluded that there was both an issue of fiscal policy and severe, widespread inertial inflation. It created the Unidade Real de Valor (Unit of Real Value), which served as a key step to the implementation of the current currency, the real. At first, most academics tended not to believe that the Plan could succeed. Stephen Kanitz was the first public intellectual to predict the future success of the Real Plan. The Plano Real: (i) introduced a new currency called the Real (plural Reais) on 1 July 1994, as part of a broader plan to stabilize the Brazilian economy, the short-lived cruzeiro real was substituted in the process, (ii) enacted a series of contractionary fiscal and monetary policies, restricting its expenses and raising interest rates. By doing so, the country was able to keep inflation under control for several years. In addition, the high interest rates attracted enough foreign capital to finance the current account deficit and increased the country’s international reserves, (iii) put a strong focus on the management of the balance of payments, at first by setting the real at a very high value relative to the U.S. dollar; and later in 1998, by a sharp increase on domestic interest rates to maintain a positive influx of foreign capitals to local currency bond markets, financing Brazilian expenditures. 16
  17. 17. Executive Memorandum The Real initially appreciated (gained value) against the U.S. dollar as a result of the large amount of capital inflows in late 1994 and 1995. It then began a gradual depreciation process, culminating in the 1999 January Brazilian currency crisis, when the Real suffered a maxi-devaluation, and fluctuated wildly. Following this period (1994–1999) of a quasi-fixed exchange rate, an inflation-targeting policy was instituted by new Central Bank president Arminio Fraga, which effectively meant that the fixed- exchange period was over. However, the currency was never truly "free", being more accurately described as a managed or "dirty" float, with frequent Central Bank interventions to manipulate its dollar price. The currency’s appreciation was crucial to keep inflation under control. Mainly, it assured the supply of cheap imported products to meet the domestic demand and forced domestic producers to sell at lower prices in order to maintain their market shares. This was especially important in the period immediately following the adoption of the new currency, when the sudden drop in inflation caused a surge in demand. The increased imports, therefore, were essential to avoid demand-side inflationary pressures that would undermine the stabilization plan.Macro Economic OverviewMarket Conditions As the largest and most populous country in South America, the tenth largest economy in the world and the fifth largest country in the world in both area and population, Brazil is well-positioned for continued growth. The nation has well-developed manufacturing, mining, agricultural and service industries, as well as a large labor pool. Brazils macroeconomic fundamentals are currently very strong, and both the long and short-term outlook for the country are positive. Brazil has an increasing balance of payments surplus, continued government commitment to fiscal discipline and inflation control, increasing export volume growth, decreasing interest rates and strong foreign direct investment, all of which are expected to strengthen the economy. The favorable macro economic environment has also played a significant role in the growth of the real estate industry in Brazil. Continued economic expansion, including a rapidly growing international corporate presence and growth of local companies, is increasing demand for residential and commercial real estate development. Industrial real estate development activity, particularly in warehouses and logistics centers, is directly tied to growing internal demand, consumer purchasing power and increasing trade. These economic effects have put added pressure on developing distribution centers to get manufactured goods into retail locations for consumer consumption. Prices for Class A office space are anticipated to increase as the vacancy rate is expected to continue falling in 2009. The residential real estate market is further supported by favorable demographics including a young and growing population, with the prime home buying age group 17
  18. 18. Executive Memorandum expected to grow at a fast pace over the next 20 years. In addition, Brazil has a large housing deficit that has primarily been the result of low levels of mortgage availability in the country. However, mortgages are becoming more readily available and affordability is expected to increase significantly over the coming years due to a combination of the following factors: (i) declining interest rates, (ii) higher availability of credit primarily benefiting the lower and middle income segments, (iii) extension of mortgage terms, (iv) increasing number of loans granted using saving account funds, and (v) a more beneficial regulatory framework to mortgage lenders. Moreover, the hospitality sector is expected to benefit from the robust business environment and the emergence of Brazil as a major tourist destination.Brazil Recent During the 1990s, the Brazilian economy did not experience the same levelEconomic Growth of robust growth as other major emerging economies like India, Russia and China. Beginning shortly after the settling of global economic and political changes in 2001-2002 and the Brazilian presidential elections of that year, the Brazilian economy has gradually risen to achieve consistent growth and a development cycle of significant investments. Already an economic power in natural resources and agriculture, Brazil has improved its management of internal and external economic policies which has resulted in strong monetary inflows and a strengthening currency. This combination has helped Brazil reach levels of domestic and foreign investment not seen for more than three decades. The country has become an attractive destination for investments in spite of recent global economic slowdowns. For the second consecutive year, Brazil’s GDP in 2007 grew by more than 5% which was enough to allow Brazil to become a net foreign debt creditor for the first time in its history. Also a first, the country’s sovereign debt was upgraded to investment grade by two recognized global rating agencies, Standard & Poors and Moody’s. Many of the recent changes in the Brazilian economy are a result of an overhaul of the administrative and institutional environment, creating more attractive markets and business conditions, as evidenced by its GDP growth shown in Exhibit 1. Exhibit 1 – Brazilian GDP growth on a solid upward trend 18
  19. 19. Executive Memorandum While some years resulted in slower GDP growth than others during this period, the overall trend in Brazil since 2002 has been upward. During this time Brazil has established itself as a major player in the global commodities market, and concerns of radical economic and political changes with the election of leftist President Luiz Inacio Lula da Silva in 2002 have proven unfounded. Combined with the expansion of foreign direct investment ("FDI"), as shown in Exhibit 2, several other relevant macroeconomic landmarks were noted in the 2003-2007 period:  Stable political outlook (President Lula reelected in 2006)  Continuous improvements in foreign investment regulatory environment  Controlled inflation allowing for further interest rate reductions, credit expansion and employment growth.  Stable monetary and fiscal policies.  Diversified export base with no single trade partner representing more than 20% of exports  No significant ethnic or religious conflicts. Exhibit 2 - FDI inflows are reaching record levels Although FDI remains a key determinant of potential real estate development demand, there is also growing local demand for real estate because of historically low quality supply and rising internal purchasing power in Brazil. Local demand for quality real estate has been growing in all asset classes during the last four years. Local corporate demand growth is attributable to business expansion and efforts to improve market share from foreign competitors or through partnerships with established multinationals. Housing demand has been triggered by rising income levels, the advent of expanded credit availability and general employment increases. Brazil is considered to be a “young country” with demographics that support a sustainable expansion of domestic consumer demand and family formation, especially when compared with other mature and even some emerging economies – see Exhibit 3 on the following page. 19
  20. 20. Executive Memorandum Exhibit 3: Young Population - Savings & Growth PotentialIncreasingDomestic Demand Pent-up demand for low income residential units is particularly strong in Brazil. Because of the country’s history of high inflation and high interest rates, mortgage markets did not allow for affordable housing to be financed in conjunction with the increase in the urban population. However, since the implementation of inflation targeting by the Brazilian Central Bank, and the ensuing gradual decrease in interest rates and reduction of taxes, the expansion of credit availability and disposable income, the residential sector has experienced unprecedented growth as illustrated by Exhibits 4, 5 and 6 below. Exhibit 4 - Total Credit to GDP (a Measure of Macroeconomic Stability) is Directly Affected by Credibility of Inflation Targeting 20
  21. 21. Executive Memorandum Exhibit 5 - Total and Mortgage Credit / GDP in Brazil is still very low, a legacy of high inflation / high interest rate history Exhibit 6 21
  22. 22. Executive MemorandumConsistent GDPGrowth & LowInflationRecord ForeignDirect Investment &InternationalReservesImproved ExternalAccountsLow Credit UsageCompared to OtherCountries 22
  23. 23. Executive MemorandumGrowing MortgageMarkets & ControlledInflation In 2007, Brazil was able to successfully place external debt denominated in Brazilian Reais (BRL – Brazil’s currency), which was considered a major accomplishment given that in 2002 most international creditors positioned Brazil in the group of countries carrying a default risk. For much of this decade internal demand growth has helped the country to become more detached than in previous cycles from external risks and the effects of economic downturns in mature markets such as the U.S. and the EU. Domestic consumption in Brazil increased 6.5% in 2007 when compared with 2006. In March 2008 formal unemployment recorded its lowest level in twenty years according to IBGE (Brazilian Institute of Geography and Statistics). These trends are occurring at a time when first-time homeowners are directing a significant share of their income to mortgage payments. Because of the long term profile of FDI applied to mature industries and manufacturing, the foreign exchange outlook in Brazil is expected toMore Sources of stabilize. This trend is supported by favorable foreign trading pattern and aStability high level of international reserves – See Exhibits 7 and 8 below. Exhibit 7 – Soaring international reserves are a testament of favorable trading and investment patterns 23
  24. 24. Executive Memorandum Exhibit 8 – Controlled inflation and favorable investment/trade outlook should bring currency stability Brazilian real estate capital markets have changed rapidly. This evolution is evidenced by the large number of real estate companies that went public on the São Paulo Stock Exchange (BOVESPA) during 2007. A total of 21 companies were listed resulting in approximately BRL12 billion being raised for companies largely in the residential sector. While the majority of these companies were established in the major centers of Sao Paulo, Rio de Janeiro and other capitals with a high concentration of urban population, some companies were conglomerates with interests in industrial and office sectors. More than 40% of the capital raised through public offerings came from international investors. A continuation of political stability in Brazil will support reduced country investment risk premiums. Country risk reduction, in turn, encourages the flow of new capital into local real estate debt and equity markets, provided the host country liberalizes its financial sector. Exhibit 9 describes how the cost of borrowing has fallen since 2002 in Brazil. This trend of falling rates was consistent in 2006 and 2007, when private banks began competing for mortgages directly with state sponsored banks. Exhibit 9 – Lower interest rates now, but still trending down, alongside inflation 24
  25. 25. Executive MemorandumRecent Highlights Dilma Rousseff In perhaps the most significant step since she took office on January 1st, 2011, President Dilma Rousseff has differentiated herself from former leader Luiz Inácio Lula da Silva by supporting the UN vote to monitor human rights in Iran. It marks Brazil’s first change in foreign policy under the new administration and demonstrates Brazil’s desire to become a permanent member of the UN Security Council. A national poll requested by the National Confederation of Industry was released on April 1, 2011 and indicates that the presidency of Dilma Rousseff has the approval of 73 percent of the population. The rejection of the first woman to assume the presidency of Brazil is only 12 percent. Policies on employment, environment, education and poverty reduction were approved by the citizens, while the tax and health strategies have been rejected, the survey notes. This high level of popularity has been surpassed only by the former president, Luiz Inacio Lula da Silva, whose popularity the early days of government reached 75 percent. Respondents were asked how Rousseffs administration compares with that of Lula and 64 percent believe it is the same, 12 percent believe it is better, while only 13 percent think the current government is worse. For 14 percent of respondents, Rousseff has a governing style very different from its predecessor and 40 percent believe it is a little different, but 39 percent think there is no difference. Newly Discovered An enormous offshore oil discovery could help Brazil join the ranks of the Oil Reserves worlds major exporters, but full-scale extraction is unlikely until 2013 and will be very expensive. The "ultra-deep" Tupi field off the coast of Rio de Janeiro could hold as much as 8 billion barrels of recoverable light crude, and initial production should exceed 100,000 barrels daily, says Guilherme Estrella, exploration and production director of Brazilian state oil company Petroleo Brasileiro (PBR). Petrobras, as it is known, will start pilot pumping in 2010 or 2011 but full production would take several more years, Estrella said late Thursday. Tapping the Tupi field will cost billions of dollars, but Petrobras is flush with cash for strategic investments because of growing production and high international oil prices. Petrobras, which currently has 16 billion barrels of proven reserves, is investing more than $200 billion in five years as it taps the so-called pre-salt fields lying two miles below the ocean surface and another two to four miles beneath the seabed. Brazilian lawmakers passed a bill last year making Petrobras the operator of all new exploration licenses in the pre-salt and other areas deemed strategic. Rights to explore more than half of the region are yet to be auctioned. The oil producer controls or has stakes in 85 percent of all the existing licenses. The area likely holds 60 new fields with an average size of 2.2 billion barrels, according to the study. However, the way in which the oil revenues will be spent is more interesting. As President Dilma Rousseff recently said, oil is Brazil’s “passport to the future”. It is obvious that a large part of the revenues should go to education, as standardized tests in Brazil prove a poor education system. Federal funding could also be used in forming high-skilled professional jobs and encouraging research. Additionally, Brazil needs to improve its decrepit infrastructure. Airports and highways need improvement in order to facilitate economic production and efficient public transportation—especially with the upcoming World Cup and Olympic games. Oil revenues should also be used to curtail inequality through government programs like Bolsa Família, which gives families stipends for ensuring their kids stay in school. 25
  26. 26. Executive MemorandumBrazil Credit Rating In April 2011, Brazil’s credit rating was raised one level by Fitch Ratings,Upgraded which cited the economy’s growth prospects and budget cuts under President Dilma Rousseff. The country’s foreign debt rating was increased to BBB, the second-lowest investment grade and in line with Mexico, Russia and Thailand, from BBB-. The outlook is stable, Fitch said in a statement. The ratings company last boosted Brazil’s ranking in May 2008. Standard & Poor’sand Moody’s Investors Service rate the country one step lower. Latin America’s biggest economy may grow 4.1 percent this year after expanding 7.5 percent in 2010, the fastest in more than two decades, according to the median estimate of 14 analysts surveyed by Bloomberg. Rousseff, who took office Jan. 1, pledged to cut this year’s budget by 50.7 billion reais ($31 billion) to help the central bank contain inflation. “The Rousseff administration has displayed signs of greater fiscal restraint, which coupled with healthy growth prospects should allow for a fall in Brazil’s heavy general government debt burden,” Fitch said in the statement. The extra yield investors demand to own Brazilian bonds instead of U.S. Treasuries narrowed 2 basis points, or 0.02 percentage point, to 168 at 3:20 p.m. New York time, according to JPMorgan Chase & Co. The Bovespa stock index rose 0.5 percent. The real pared its drop and was down 0.1 percent to 1.6090 per dollar. Brazil’s net debt fell to 40 percent of gross domestic product in February from 60 percent in January 2003, when Dilma Rousseff’s party, the Workers’s Party, first won the presidency. Rousseff has pledged to slash spending to ensure net debt will continue to drop as a percentage of GDP and help the central bank fight inflation.The Future Leader Brazil wind farm capacity making a total of 786 MW. Brazil has massiveOf Wind Power wind power potential. The regulator contracted 71 wind turbines projects for a wind power capacity of 1,800 MW. Far from the bright lights of Rio de Janeiro, the north-easterly Brazilian states of Ceara and Rio Grande del Norte are blessed with some of the strongest and most consistent winds in the world. With such high potential, it is not surprising that Brazil’s wind power industry has been taking off massively in the last couple of years: the country added 264 MW of wind farm capacity in 2009 and by mid-2010, another 180 MW were installed, making a total of 786 MW. In December 2009, the Brazilian energy regulator hosted the first wind power only auction, which contracted 71 wind turbines projects for a total capacity of 1,800 MW. Two additional auctions took place in August 2010, resulting in an additional more than 3 GW of tendered capacity for September 2013. Overall, it seems clear that as for other industries, Brazil is likely to become a world player for wind energy, providing a hugely important platform for Europe’s companies to grow and build up their portfolios. All that is needed in order to ensure that the possible future is truly durable is to reinforce it with a long-term legislative framework. 26
  27. 27. Executive MemorandumPromissing Trade The latest China-Brazil trade deal, which was announced in April 2011 isAgreement worth up to $1.5 billion. In fact, as the two countries entered into their 3rd annual BRIC summit with their Indian and Russian counterparts, Brazil made it clear that it sees China as a model for its own industrial development. Brazil and China have entered into an increasing number of trade agreements as the Red Dragon has sought to shore up supplies of raw materials to fuel its growth. Brazil, among other things, is the worlds largest producer of iron ore and often a counterpoint in negotiations between China and Australian miners. China actually passed the United States as Brazils biggest trading partner in 2009, as trade between the two countries tripled in the past five years to $62.6 billion. Brazils loss has been Chinas gain. That much was made apparent at this years iconic Rios Carnival, where 80% of the costumes on show were made in China. The tariffs impelled Chinese tech giant Foxconn Technology Group to look at moving some of its manufacturing operations to Brazil. Though still under consideration, the $12 billion investment would make products by such Foxconn clients as Apple Inc., Dell Inc., and Hewlett-Packard Company more affordable in Brazil. Its understandable. Chinas economy is expected to grow 9.6% in 2011 -- more than twice the rate of Brazils 4%. Through the state-owned development bank, BNDES, the Brazilian government has wielded credit as a national economic development tool, increasing lending to many companies in recent years. In addition, federal or state governments hold a stake in as many as one in five Brazilian companies. For example, the Brazilian government owns 54% of the common shares of oil giant Petrobras, more formally known as Petroleo Brasileiro SA.Bad Checks in Brazil Serasa, the leading consumer credit information service in Brazil reportedLowest since 2004 the lowest experience of bad checks (returned for not sufficient funds). In 2010, 1.76% of checks around the country have been returned, as shown by the indicator Serasa of bad checks, reaching the lowest level since 2004. That year, the return rate was 1.58%. In December, compared with the same period last year, fewer checks were returned: 1.72% of the total issued, as against 1.87% in December 2009. In the previous month, in November, the volume of bad checks presented elevation. In the period, 1.68% were returned checks. The decrease recorded in the cumulative return of checks in 2010, compared with previous years, due to consumer preference for forms of financing with longer maturities that pre-dated and the possibility of making minimum payments, as the card credit, according to economists Serasa. For the year, Amapá was the state with the highest percentage of returned checks (10.79%).On the other side is Sao Paulo, which recorded the lowest percentage, 1.32%. Among regions, the North was the highest percentages of return checks in the period, 4%. In the opposite appears the Southeast, with 1.43%. 27
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