A new agribusiness law enacted on April 7th (Federal Law N. 13.986) introduces major changes and improvements in Brazilian legal framework and will provide greater legal security to foreign lenders, insurers, and investors in the sector.
See below 4 key points:
1. Fiduciary Lien over Rural Land (Alienação Fiduciária em Garantia): The new law amends Federal Laws N. 5.709/71 (which governs land acquisition by foreigners) and N. 6.634/79 (which governs land in country borders) to allow rural land to be granted as collateral to foreign lenders, including, but not limited to, through Fiduciary Lien (a collateral type not permitted until now). Such innovation impacts very much foreign lenders as from April 7th on they will be able to benefit from the possibility of extending financing/investing in Brazilian agribusiness securing their risk with Fiduciary Lien over rural land, a Judicial Recovery/Bankruptcy protected security instrument without risk of being challenged in courts.
2. Seggregated Rural Asset (Patrimônio Rural em Afetação): The new law creates the legal figure of “seggregated rural asset”. By such institute, land owners may seggregate one or more of their rural lands to form a sort of fideicomisso or trust that will not be subject to the land owners’ geral obligations and debts. The seggregated rural assets are only allowed to be granted as collateral to financing documented by Rural Product Notes (Cédulas de Produto Rural (CPRs)) or the newly created Rural Real Estate Notes (Cédulas Imobiliária Rural (CIRs)). The law states that the seggregated rural asset excludes plantation, movable assets and animals. Such new legal institute will also impact positively foreign lenders, including through export prepayment structures, as it will add another layer of legal protection in their financing in Brazil.
3. Rural Product Notes (Cédula de Produto Rural (CPRs)): The new law amends a number of provisions of the existing CPRs legislation. From now on, (i) parties allowed to issue CPRs have broadened, (ii) financial CPRs may be issued based on foreign currency adjustment, (iii) CPRs’ lenders may be granted as collateral rural land seggregated from the owners’ general obligations/debts (see item 2 above), and (iv) CPRs now allow the creation of fiduciary lien over fungible assets (such as soybean, corn, cotton, tobacco, etc.), and not only infungible assets, as it was permitted until now.
4. Certificates of Agribusiness Receivables (Certificado de Recebíveis do Agronegócio (CRAs)): The new law permits CRAs, a capital markets securitization securities, to be issued based on foreign currency adjustment, provided that the underlying receivable (such as CPRs) is also issued with foreign currency adjustment. This legal improvement will benefit both Brazilian issuers and foreign investors as it opens the door to foreign investment in such type of agribusiness securities.
As summarized above, the new Federal Law N. 13.986 introduces a number of relevant changes and innovations (not limited to the ones above) that will impact positively the Brazilian agribusiness and the legal security for foreign lenders, insurers, and investors directing funds to the country. All parties involved will have now to digest the new legislation and start putting structures to benefit from it.