Foreigners doing business in Brazil are already facing a higher volume of restructurings and a increasing risk of a new waive of Judicial Recovery filings due to the pandemic.
Although key sectors with large international trade exposure, including agribusiness and pharmaceutic, seem to be fairly armored so far, other segments are being hardly hit.
In the current scenario, foreign lenders, investors, insurers, and companies should now have an Action Plan in place addressing the following points:
1. Risk Assessment: Assess your legal documentation, including collateral package, to understand your rights and obligations towards Brazilian business partners, borrowers and guarantors;
2. Collateral: Consider if the current collateral package is enough to provide legal comfort and cover for the oustanding amount or the obligations it supports, and whether it may be a strategic moment to approach borrowers and guarantors to negotiate any sort of collateral enhancement (if the case), or if there isn´t such open door, conduct asset search in preparation for any potential litigation. Newly issued Brazilian law provided new collateral options to foreign entities, so it should be considered.
3. Legal Brainstorming All Potential Scenarios: In light of current adverse situation and the risks that may arise in the coming months, brainstorm with your in-house and local legal counsels the potential scenarios and the most appropriate legal actions that may have to be taken in order to protect your rights and collateral. Experience in Brazil shows that the ones who are proactive and lead the pack are the first to enjoy better terms, collateral or full repayment;
4. Restructurings: If there is the need of restructuring of any loan or equity facility, think about what proper terms and conditions should be agreed on with borrowers and guarantors, and what type of foreign and Brazilian law governed documentation should be required in order to protect lenders and investors of any adverse future situation, including judicial and out-of-court restructuring.
We prepared an infographic outlining the steps above to help preparing the Action Plan (see the link).
Taking the steps above should help foreign lenders, investors, insurers, and companies navegate their investments in Brazil during the current and coming adverse conditions, so that their exposure is fully secured or the risks of loss are mitigated.