The new legal milestone of securitisation in Brazil

February 2023 | EXPERT BRIEFING | BANKING & FINANCE

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Securitisation has been gaining strength in Brazil over the years – an instrument used to bring entrepreneurs, who seek resources to finance their activities, closer to investors, who themselves are seeking higher interest-bearing securities than generally available in the market.

In short, securitisation is a financial practice which involves grouping various types of financial assets and then converting them into standardised negotiable securities in capital markets. Thus, the debt is transferred and sold in the form of bonds to various investors. In Brazil, historically, securitisations are generally carried out in the real estate and agribusiness markets, although they are applicable in other areas, as this article will explore.

According to the latest yearbook published by UQBAR, in 2021 the Brazilian real estate sector, specifically the primary market, exceeded R$40bn reais ($8bn dollars) in negotiated real estate receivables, more than double the amount seen in 2020. According to estimated figures, this amount was also surpassed in 2022, a growth of 13.6 percent.

In terms of the primary market for agribusiness receivables, the scenario is no different, with growth in 2021 of 62.5 percent compared to the previous year and, according to preliminary data, surpassing the figure of R$41bn reais (approximately $8bn dollars) in 2022.

Seeking to boost the Brazilian market, in August 2022 the federal government sanctioned Law No. 14,430, which, in addition to consolidating Provisional Measure No. 11,103/22, brought a significant amount of development to the market, expanding investment possibilities which, before the advent of the new law, were restricted to the real estate and agricultural markets.

The new legal milestone introduced, for the first time, the legal definition of securitisation, treating it as a means of acquiring credit rights when issuing certificates of receivables or other securities to investors, where payment is primarily conditional on the receipt of resources from credit rights and other assets, rights and guarantees.

The unrestricted and generic concept of securitisation outlined by the legislator allows operations based on credit rights in various economic sectors. As a consequence, certificates of receivables may have, as a ballast, any credit right. Formalisation occurs upon signing a securitisation term, which contains the data listed in article 22 of Law No. 14,430/22, as well as additional information to be established by the Brazilian Securities and Exchange Commission (CVM).

In addition to bringing versatility to receivables certificates, the new law allows securitisation companies to carry out operations based on any type of securities.

Following issuance of the new law, any enterprise can now advance receivables, using them to maintain or expand activities without the need to ask banks for money or to use more complex structures. Thus, an investor can acquire securities and invest money to gain a more attractive remuneration than the market average.

Securitisations become even more attractive when viewed from a tax perspective. The wording of the new law amends the text of law 9.718/98, determining that securitisation companies may deduct expenses from funds raised under the operation, in any credit category. Previously, this was only attributable for real estate, financial and agricultural credits.

Also, under Law No. 11,033/04, income derived from certificates of real estate receivables and agribusiness receivables certificates is exempt from income tax. This is very relevant to these markets. However, this aspect of the new law has received criticism from experts and is likely to be subject to legislative review.

From the perspective of regulatory bodies, especially the CVM, beneficial innovations include the possibility of companies issuing certificates for real estate receivables and targeting them toward payment of rent or other real estate debts, , having as ballast a real estate credit, arising from a debt bond issued by the company. Originally, the certificates of real estate receivables have as ballast the real estate business itself.

Prior to this development, certificates for real estate receivables were traditionally issued by companies in the sector or by those that held real estate credits as collateral, with the funds used for the construction, purchase or renovation of real estate. Under the current structure, in addition to creditors of real estate credits, entrepreneurs with debts may also issue certificates, allocating funds collected for this purpose.

Thus, companies from different sectors now have access to this instrument, allowing them to capture money in the market with more satisfactory deadlines and conditions.

In terms of investor protection and legal certainty, the new law has broadened the use of the fiduciary regime and separate assets, to the extent that they are applicable to all securitisations and not restricted to certificates of receivables issued in the real estate and agribusiness markets.

Furthermore, assets that remunerate investors should be segregated from the assets of the securitising company, including tax, labour and social security liabilities. In this way, it is possible for the same securitisation company to carry out several operations without confusing assets from different deals, and without the liabilities of the securitisation company interfering with the investor’s remuneration. The risk of the investment should be commensurate with the performance of the respective assets to which the certificates are linked.

The new law has transformed securitisations into a legally safer mechanism for entrepreneurs seeking working capital, and expanded the range of possibilities for securitisation. It is safe to say that the securitisation market will grow and assist many entrepreneurs to gather the resources needed to keep their business operating healthily, At the same time, securitisation should be an interesting and safe option for investors seeking high-risk investments.

Brazil’s new securitisation law should create fertile ground for operations of this nature, expanding the list of sectors with access to this type of funding. Though the new rules are still at an early stage of adoption, there are high expectations that securitisation will gain greater traction among Brazilian companies and investors, expanding the application and destination of resources, and giving investors greater legal certainty in such a way that foments this growing market and contributes to economic development and job creation in Brazil.

Claudio Miranda is a partner and Ricardo Azevedo and João Gabriel Dantas are associates lawyers at Chalfin, Goldberg & Vainboim Advogados. Mr Miranda can be contacted on +55 (21) 3970 7200 or by email: claudio@cgvadvogados.com.br. Mr Azevedo can be contacted on +55 (21) 3970 7200 or by email: ricardo.azevedo@cgvadvogados.com.br. Mr Dantas can be contacted on +55 (21) 3970 7200 or by email: joao.dantas@cgvadvogados.com.br.

Claudio Miranda, Ricardo Azevedo and João Gabriel Dantas

Chalfin, Goldberg & Vainboim Advogados