Considered a relevant milestone for a growing market in Brazil, the new legal framework for Securitization of Receivables in Brazil came into force.
See below 6 relevant points of Termporary Law 1,103/22 to be analyzed by domestic and foreign players in the sector:
1. Legal Definition of What Are Securitization Firms: Securitization firms are non-financial institutions incorporated in the form of an S/A (privately held corporation), whose purpose is to acquire receivables and issue Certificates of Receivables (CRs) or other securities representing securitization of receivables.
2. Which Securities the Securitization Firms Issue to Investors: Securitization firms may issue, among other securities, the so-called Certificates of Receivables. CRs are nominative credit instruments, issued in book-entry form, freely negotiated, and constitute a promise to pay in cash, preserving the possibility of payment in kind, and an extrajudicial enforceable instrument.
When publicly offered or admitted to trading on the capital market (regulated by the Brazilian Securities and Exchange Commission (CVM)), Receivables Certificates are considered securities.
3. Liability of the Securitization Firms: Securitization firms will be responsible for the origin and authenticity of the credit rights linked to the Receivables Certificate issued by them, which will demand their attention in the diligence/risk assessment of each transaction.
4. Investment Agreement with Investors: Securitization firms may enter into an agreement for the subscription and payment of Receivables Certificates with investors, in order to receive funds for the acquisition of receivables that will serve as backing for its issuance, according to capital calls made according to the schedule expected for the acquisition of credit rights.
5. Securitization Firms May Issue Issues in Foreign Currency: the Receivables Certificate may be issued with a foreign currency adjustment, provided that it is (i) linked to receivables with foreign currency adjustment in the same currency; and (ii) issued in favor of an investor residing or domiciled abroad (with the National Monetary Council (CMN) being able to establish other conditions for the issuance of CRs linked to exchange variation in favor of an investor residing in Brazil).
6. Fiduciary Regime on Receivables to Isolate Risk of Insolvency of Securitization Firms: The securitization firms may establish a fiduciary regime on credit rights and on assets and rights that are the subject of a guarantee agreed in favor of the payment of Receivables Certificates or other securities representing securitization transactions and, if any, the fulfillment of obligations assumed by the assignor of the credit rights.
Receivables, assets and rights subject to the fiduciary regime will constitute separate assets, held by the securitization firm, which cannot be confused with the assets of the securitization firm, which will provide greater protection to investors.
The legal framework for the securitization of receivables is in force since March 15th, but, as it was issued through a Temporary Law (1,103/22), it must be analyzed and voted on by the Brazilian Congress within 60 days, extendable for an equal period.