Trade Finance | 4 Key Collateral Instruments For Foreign Banks, Funds and Fintechs in Credit Transaction to Brazilian Agribusiness

The Brazilian agribusiness sustained growth prospects for the coming years has called the attention to several types of local and foreign lenders seeking to finance the sector in local currency (Brazilian reais) and dollar/euro. 

Beyond the traditional lenders, such banks and tradings, the Brazilian agribusiness is experiencing the entrance of domestic investment funds (eg. FIDCs, FIAGROs and FIMs), fintechs and family offices, but also foreign hedge funds and insurers, many of them without knowledge and trackrecord to structure transactions from the standpoint of credit and also the collateral package based on the cycle of the underlying commodity’s planting/harvesting/storage. 

We list below 4 key collateral that domestic and foreign lenders should consider to finance Brazil’s agro:

1. Fiduciary Lien over Rural Land: the new agribusiness law (13,986) allowed Brazilian farmland to be subject to fiduciary lien in favor of not only domestic but foreign lenders. 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 are having (and will have) a major impact on increasing liquidity for agribusiness financings. Brazilian and foreign lenders must consider which ones must be used to mitigate/neutralize as much as possible the borrowers’ credit risk.


Share on facebook
Share on linkedin

Subscribe to
our Newsletter:

* Mandatory fields