BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
1.3 The High-Yield Market Brazil’s high-yield debt market – both international and domestic – has played a meaningful role in recent financing trends. On the international front, Brazilian issuers have increasingly tapped into global high-yield bond mar- kets as an alternative to bank loans. Notwithstanding higher base rates abroad, investor appetite for Brazil- ian credits resurged in 2023–24. This surge in high- yield fundraising reflects a clear upward trend in global bond financing for Brazilian companies, even those below investment grade. The availability of high-yield financing has impacted loan terms and structures domestically – larger com- panies with wide capital markets access can negoti- ate more borrower-friendly loan conditions, knowing they have the option to refinance via bonds. Banks have responded by offering longer tenors and friend- lier covenants on loans for strong borrowers in order to stay competitive. Domestically, debentures – particularly incentivised infrastructure papers – continue to fund infrastructure projects and mid caps at higher coupons. Bond-style features (incurrence tests, covenant-lite mechanics, and grower baskets) are appearing in loan documen- tation. Overall, robust high-yield activity has nudged Brazil- ian loan documentation toward more flexible, market- friendly structures. 1.4 Alternative Credit Providers Brazil’s loan market has witnessed significant growth in alternative credit providers in recent years, diversi- fying the sources of credit beyond the traditional com- mercial banks. Private credit funds and direct lend- ers (including global investment funds) have become increasingly active in Brazil. Receivables funds ( fundos de investimento em direi- tos creditórios , or FIDCs) have scaled up as an alter- native channel. This allows companies to monetise working capital assets and enabling non-bank inves- tors to fund the real economy via structured vehicles.
Public policy also played a countercyclical role. In 2023, the Brazilian Development Bank ( Banco Nacional de Desenvolvimento Econômico e Social , or BNDES) increased long-term lending and subscribed infrastructure debentures to catalyse investment, while “Desenrola” supported retail debt restructuring led by public banks. These vectors widened the fund- ing base and compelled banks to remain competitive on pricing and speed. These funds, often partnering with local asset managers, offer companies bespoke credit – for example, mezzanine loans, unitranche facilities, or pre-export financing – that may not fit within traditional banks’ lending criteria or timing. For instance, during periods when banks tightened credit (eg, after the high-profile corporate default of a major retailer in early 2023), private credit stepped in to fill the gap. Sponsors of acquisitions and infrastructure projects have tapped debt funds for more flexible terms (albeit at higher yields) than those offered by banks. The influence of these private lenders is seen in the greater variety of loan structures in the market, often tailored to the cash flow of the borrower (with pay- ment-in-kind (PIK) interest, toggle features, or equity kickers). 1.5 Banking and Finance Techniques Banking and finance techniques in Brazil are evolving as market participants adapt structures to investor preferences and borrower needs. One notable development is the use of holding com- pany (HoldCo) structures in financing arrangements. In complex acquisition financings, sponsors increas- ingly utilise HoldCo loans or bonds (debt issued at the level of the holding company that indirectly owns the operating company). This technique can avoid some regulatory and corporate pitfalls, such as finan- cial assistance issues or restrictions on the operating company incurring debt. HoldCo debt is structurally subordinated (lenders only have a claim on the equity value of the operating subsidiary), but it offers flex- ibility – for instance, it may carry interest that accrues until a refinancing event, and it can be serviced by dividends upstreamed from the operating company.
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