Private credit transactions in Brazil will exceed US$ 100 billion in 2025, where local and foreign funds and investors grant short, medium and long term credit to Brazilian companies in agribusiness, real estate, tech, and other sectors.
This class of alternative assets is structured and financed locally especially by FIDCs, FIIs, and family offices, and from abroad by hedge funds and family offices, via bilateral loans and the issuance of Real Estate Receivables Certificates (CRI), Agribusiness Receivables Certificates (CRA), Debentures, Commercial Notes, and other securities.
Based on recent track record, see below 4 key steps for local and foreign funds and investors in structuring and closing private credit transactions with Brazilian companies:
1. Conduct a Risk Assessment of the Potential Operation, Debtor, Guarantors, and Collateral: Risk assessment is one of the most crucial elements for evaluating credit transactions by lenders.
In the last 3 years, the risk assessment process has greatly improved in Brazil due to the use of technological tools and access to key data and documentation to identify and anticipate relevant risks to borrowers and their businesses, guarantors, and collateral.
2. Conduct Detailed Legal Due Diligence on the Borrower, Guarantors, and Collateral: Conducting legal due diligence is a “must do” in bilateral loans, Real Estate Receivables Certificates (CRI), Agribusiness Receivables Certificates (CRA), Debentures, Commercial Notes, and others.
Through it, structurers and lenders will be able to have a real understanding of relevant risks that may prevent the transaction from proceeding or whether, once closed, such points should be carefully monitored post-closing.
Aspects related to (i) the borrower and guarantors, such as their asset, corporate, tax, debt, default and litigation situation, (ii) the underlying assets, such as their title, third-party rights, encumbrances, and (iii) collateral, are always analyzed very carefully.
3. Prepare the Loan Documents and Collateral Package Considering Default Remedies: Loan agreements, CRI, CRA, Debentures, Commercial Notes offering memos are executed to set the terms and conditions of the facility, to comply with regulations, but mainly to protect lenders in case of default.
Structuring private credit transactions with this perspective in mind will create credit and collateral instruments capable of effectively protecting lenders, fund managers, securitization companies, fiduciary agents, and others involved.
4. Post-Closing Monitoring of the Borrower’s and Guarantors’ Obligations and Collateral: Regular and close monitoring of borrower’s and guarantors’ obligation and collateral after signing, closing, and disbursement of the funds gives lenders a real view of its progress and enables immediate decision-making and actions for adjustments or defaults.
This surveillance provides a differential in decision-making by the financing side, anticipating events with a negative impact.
Given the growth of private credit operations in Brazil in recent years, lenders should follow the steps above for proper structuring and reduction of inherent risks.
