The raise in domestic cost of Money and the massive volume of credit granted by Brazilian and foreign banks, fintechs, funds and companies may result in more cases of debt restructurings in 2022.
See below 5 key points to be considered by lenders when renegotiating commercial, banking, and corporate contracts in Brazil.
1. Restructuring Contract Type. Debt renegotiations are generally formalized through an amendment to the original contract or a debt confession instrument. The key is that, regardless of the type, the contract must be straightforward, clear and contain provisions that provide certainty and enforceability to the confessed debt.
2. Confessed Debt Amount. The clause providing for the amount of the debt must be indicate its exact value (or means of reaching it, if applicable), avoiding subjectivities. It must contain a declaration that the debtor confesses the amount due as net, certain and due.
3. Default Charges. It is important to determine whether the repayment schedule will be subject to the interest, default interest and penalty provided for under the new debt instrument or those eventually included in the original contract. It is not unusual to see debt renegotiations being challenged in Brazilian courts due to confusion and overlapping contractual provisions.
4. Credit Assignment. Given that the “distressed” credit market is very active in Brazil, creditors should always consider the inclusion of contractual provision that allows the assignment and transfer of credit, rights and obligations to third parties, without the prior debtor’s consent (a later communication should be enough). There are countless cases of sale of credits that are prevented from taking place due to the lack of such type of provision.
5. Collateral Package. Creditors should always seek to negotiate the inclusion of collateral in renegotiations. Although collateral over fixed, movable or real estate property are always preferred, personal guarantees (aval/fiança) also help as they generally create the commitment of individual guarantors (directors/partners/spouses) to make the debt be effectively paid off.
The above points take into account a background of a large number of analyzed restructurings and an updated overview of the Brazilian caselaw from the main jurisdictions throughout the country.