An increasing number of Brazilian agribusiness, real estate, tech and industrial companies are raising capital through debt capital markets (DCM) transactions for investment purposes, cash management, or debt refinancing.
These transactions are structured through direct lending, from foreign investors, or Brazilian Real Estate Receivables Certificates (Certificados de Recebíveis Imobiliários – CRI), Agribusiness Receivables Certificates (Certificados de Recebíveis do Agronegócio – CRA), Debentures, and other securities, typically invested in by local funds (e.g., REITs, FIDCs) and professional investors.
Based on recent track records, below are 3 key steps for fund managers and investors when structuring and acquiring private credit transactions:
1. Conduct Thorough Legal Due Diligence on the Debtor, Guarantors, Underlying Assets, and Collateral: Performing detailed legal due diligence is a “must-do” in CRI, CRA, Debenture, and equivalent transactions. Through due diligence, arrangers and Brazilian and foreign investors can gain a real understanding of material risks that may either prevent the transaction from proceeding or, if completed, require careful monitoring post-closing.
Specific aspects to be reviewed include (i) the debtor and guarantors’ financial, corporate, tax, debt, default, and litigation standing, (ii) the underlying assets’ constitution, third-party rights, encumbrances, and (iii) the validity and enforceability of real and personal guarantees, all of which must be scrutinized carefully.
2. Draft Transaction Agreements and Collateral Instruments with Default Scenarios in Mind: The contractual documents governing foreign lending, and Brazilian CRIs, CRAs, Debentures, Commercial Notes, and other instruments — including loan agreement, offering memorandum and ancillary agreements — must not only comply with applicable regulations and outline the terms, conditions, and obligations of the parties involved, but primarily serve to protect investors in cases of monetary and non-monetary default.
Structuring DCM transactions with this mindset leads to the creation of issuance terms, legal instruments, and collateral packages that provide effective investor protection and, consequently, safeguard fund managers, securitization companies, trustees, and other stakeholders.
3. Closely Monitor the Performance of the Debtor, Guarantors, and Underlying Assets Post-Closing: Ongoing, close monitoring of the debtor and guarantors’ obligations, as well as the performance and condition of the underlying assets and collateral following signing, closing, and disbursement, grants investors, fund managers, securitization companies, and trustees real-time visibility into the transaction’s status. It also enables immediate action in the event of necessary adjustments or defaults.
This level of surveillance creates a competitive advantage for investors, allowing them to anticipate and respond proactively to events that may materially impact transaction performance, compliance, and collateral adequacy.
Given the increasing number of Brazilian agribusiness, real estate, tech and industrial companies raising capital through debt capital markets transactions, arrangers and investors should adopt the steps above to ensure proper structuring and to mitigate the inherent risks associated with these operations.
