Lenders and investors now have a new credit note to document credit equity transactions in Brazil with Brazilian limited liability companies (called sociedades limitadas or simply “Ltdas.”), which is the Commercial Note (Nota Comercial).
Existing since 2001, the Commercial Note has now been regulated in detail by Federal Law 14,195 and will have the power to become one of the main legal instruments used by local and foreign lenders and investors, such as fintechs, angel investors and investment funds to grant credit for “Ltdas.”, including the possibility of converting into equity, such as debentures.
See below 4 key points about the Commercial Note:
1. What is the Commercial Note? It is a Brazilian law securities and credit note, which may be issued by corporations (sociedades anônimas), Ltdas. and Cooperatives to raise funds in the market for any purpose (eg working capital, capex, venture capital investment, etc.);
2. Why will the Commercial Note be important to Ltds.? Until now, Ltdas. had few credit instruments available to document fund raising that (i) provided legal comfort to lenders and investors, (ii) had a simple issuance format and (iii) the legal rules were clear. The existing ones were, mainly, Promissory Notes and the Banking Notes (eg. CCB).
The Commercial Note brings a new type of credit note for issuance of Ltdas. with rules set out by law and which, like debentures issued by S/As, may contain a clause for convertibility into equity, provided that the offering is made via private placement.
3. Why Will the Commercial Note be important for domestic and foreign lenders? As a credit instrument, the Commercial Note may be used by (i) lenders, including Brazilian and foreign fintechs, to back credit operations in reais or in foreign currency, and (ii) investment funds such as FIDCs, FIIs, FIAGROs to portfolio credit operations, including the option of convertibility into equity.
As it is a credit instrument, the Commercial Note can be transferred and/or securitized with ease from one creditor to another via endorsement.
4. Why will the Commercial Note be important for domestic and foreign equity investors? As a credit instrument, the Commercial Note may be used by (i) angel investors as an alternative to conversible loan agreements (contratos de mútuo conversível), either for the legal security of the credit instruments and for the ease of transfer to third parties through endorsement (instead of the more bureaucratic assignment of contract) and (ii) funds such as FIPs in the instrumentalization of equity investments into Ltda.
As the market begins to understand the positive impacts of the Commercial Note, this credit note will have the power to become one of the main legal instruments for funding Ltdas. for debt or equity.