Capital Markets | Understand the New Rules for Offerings of CRIs and CRAs by Public and Privately Held Companies in Brazil

Resolution issued by the Brazilian Monetary Council restricts the issuance of Brazilian Real Estate Receivables Certificates (CRIs) and Agribusiness Receivables Certificates (CRAs), two of the main debt instruments used by companies linked, directly or indirectly, to the real estate and agribusiness sector.

With relevant income tax exemption, CRIs and CRAs are attractive both as a funding option for companies, but also for investors, whether individuals or Real Estate Funds (FIIs) and Fiagro Funds.

See below 4 relevant points about the impacts of Resolution 5.118 on CRI and CRA offerings:

1. What Resolution 5.118 Changed About the Offerings of CRIs and CRAs Regarding Issuing Companies/Debtors: CRAs and CRIs may not contain as collateral debt instruments whose issuer, debtor, co-debtor or guarantor is a publicly-held company, or a party related to public company, except if the “main sector of activity” of the public company is the real estate sector, in the case of CRIs, or agribusiness, in the case of CRAs.

The Resolution defines “main sector of activity” as the sector of a company responsible for more than 2/3 of its consolidated revenue.

Privately held companies, issuing CRI and CRA, are not subject to the “main sector of activity” restriction.

2. What Resolution 5.118 Changed About the Underlying Receivables of CRIs and CRAs: CRAs and CRIs may not contain as underlying credit rights (i) arising from operations between related parties (e.g. lease receivables owed by a related company with the debtor of the issue); or (ii) arising from expense reimbursement operations.

3. Impacts of Resolution 5.118 on the Offerings of CRIs and CRAs of Publicly-held Companies: The volume of CRAs and CRIs of publicly-held companies will be substantially impacted, as it will be restricted to debtors with a “main sector of activity” linked to real estate and agriculture.

Until then, it was very common for retail companies, with an indirect relationship with the real estate or agricultural sector, to use CRIs and CRAs as a funding instrument, which will no longer be possible.

4. Impacts of Resolution 5.118 on the Offerings of CRIs and CRAs of Privately Held Companies (Ltdas. or S/As): The greatest impact will be due to the limitation of CRIs and the CRAs cannot contain as collateral credit rights (i) arising operations between related parties; or (ii) arising from expense reimbursement operations.

Offerings of corporate CRI and CRAs will gain ground, structured through the issuance of debt instruments by the debtor in favor of the securitization company, with collateral package, including fiduciary assignment of lease receivables between related parties, fiduciary alienations and other instruments.

The fact is that Resolution 5.118 will substantially impact the offering of CRI and CRA by publicly traded companies not directly linked to the respective sectors. Privately held companies will structure their offerings via corporate debt with a collateral package or direct backing of the debtor’s receivables.


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