Brazilian law Commercial Notes have been used frequently by companies in Brazil to raise structured debt, reaching more than BRL 40 billion in 2023.
Updated by federal law N. 14.195, the Commercial Notes are gaining space between local issuers and investors, including private funds and financial institutions, due to its relative simplicity to issue and tax benefit.
See below 5 of the key features of the Brazilian law Commercial Note:
1. What Is the Brazilian Law Commercial Note? It constitutes securities regulated by Federal Law N. 4.195 in the form of credit note, issued by Brazilian corporations (S/As) and limited liability companies (Ltdas.) to raise funds with any type of local or foreign lenders or investors.
2. What Are the Conditions for Companies to Issue Commercial Notes? Commercial Notes may be issued by companies provided that the notes are booked by an institution authorized by the Brazilian Securities and Exchange Comission (Comissão de Valores Mobiliários (CVM)).
3. How Commercial Note Is Issued? Commercial Notes are issued through a document known as Offering Memorandum (Termo de Emissão), which provides for the offering terms and conditions, including the offering amount, remuneration, payment terms, conditions precedent for the investors to fund the offering, collateral package, events of default, among others.
4. Are Commercial Notes Qualified as Capital Markets Offering? Yes, Commercial Notes are deemed to be securities issued in the Brazilian capital market. They may be offered through (i) private placement, without public efforts of sale and distribution to investors and without CVM registration, or (ii) public placement, with public efforts of sale and distribution to investors and subject to CVM registration.
5. Tax Advantage of Commercial Note: Commercial Notes offerings are gaining space in the structured debt market due also to its tax advantage of exemption of IOF tax.
Commercial Note will be one a key private credit alternative for funding in 2024 in Brazil, as borrowers and investors have now an instrument of relative facility to issue, in addition to its relevant tax advantage.
