Brazilian agribusiness is generating a virtuous volume in 2021 of M&A and funding transactions via financial and capital markets in BR$ and dollars.
The transactions are ranging from asset acquisition (mostly land), and Joint Ventures, to Export Prepayments and issuances in BR$ of Agribusiness Receivables Certificates (known as CRA) and Certificates of Real Estate Receivables (known as CRIs).
The volume of transactions is due in part to the improvement of the legal security of collateral package available to agribusiness investors and lenders.
We list below 4 of the main collateral instruments used with positive protection trackrecord:
1. Fiduciary Lien over Rural Land: the so called new agribusiness law (13,986) allowed Brazilian farmland to be subject to fiduciary lien in favor of not only domestic but foreign lenders/investors. The assets subject to this type of security are not affected by the judicial recovery eventually filed by the debtor/guarantor (except if such assets are deemed essential for the continuity of the business). It is currently one of the main collateral instruments for agribusiness-related transactions.
2. CDA/WAs: the Certificate of Agricultural Deposit/Warrant, once assigned and endorsed, represents one of the most liquid and solid collaterals in agribusiness. There are massive court decisions, in all levels, acknowledging the creditors’ rights to the underlying assets represented by CDA/WAs. Upon assignment and endorsement, CDA/WAs as collateral provide full protection against judicial recovery/bankruptcy of the issuer.
3. Rural Product Note (CPRs) With Fiduciary Lien over Fungible Goods: the new agribusiness law now allows CPRs to have a built-in fiduciary lien on fungible goods, such as commodities (ex. soybean, corn, cotton, tobacco, etc.) and other agricultural products. CPR with such added collateral gives the creditor protection against judicial recovery of the issuer/debtor.
4. Fiduciary Assignment of Receivables: this collateral is widely used in agribusiness and other sectors for assigning and advancing receivables. If law requirements for registration and notification are complied, and the credit right is effectively transferable, the fiduciary assignment is a collateral instrument that grants legal protection to the creditor. Extra care must be taken to the materialization of the underlying receivables, which is a condition to exclude the creditor from the effects of an eventual judicial recovery of the assignor.
The collateral instruments described above, jointly with others, are having (and will have) a major impact on increasing liquidity for agribusiness financings and equity investments.
Brazilian and foreign lenders and investors must consider which ones must be used to mitigate/neutralize as much as possible the borrowers and targets’ credit risk.