BRAZIL Law and Practice Contributed by: Rafael Lacerda, Eric Nahum, Rômulo Martins and Fernando Oliveira, Lacerda Diniz Advogados
5.3 Funding Structure of Private Equity Transactions Private equity transactions in Brazil are predominant - ly financed with equity contributions from funds and co-investors. Given the relatively expensive and con - strained local debt market, leveraged buyouts are less common. To provide contractual certainty on equity funding, equity commitment letters are widely used, particularly in cross-border deals or where purchase price payments are structured in instalments. Where debt financing is involved, commitments are typically not fully available at signing. Instead, comfort is provided through bank or private credit fund com - mitments, satisfaction of precedent conditions, and contractual protections such as escrows, ticking fees or break-fee clauses. Over the past 12 months, rising domestic interest rates have further increased the cost of debt, con - straining leveraged structures and incentivising the use of private credit and enhanced collateral pack - ages. These developments have been reinforced by the enactment of the Legal Framework for Collateral ( Marco Legal das Garantias , Law No 14,711/2023). Equity commitment letters remain standard for the equity portion, while debt is generally supported by contractual safeguards. Equity therefore continues to be the principal source of financing. In the context of public tender offers (OPAs), Brazilian regulations require funding and settlement certainty through a local financial intermediary, with guarantees for B3 auction execution in accordance with CVM and B3 rules. Cross-border debt financing raises additional consid - erations. Interest remitted abroad is generally subject to withholding income tax (IRRF) at a rate of 15% (25% for payments to low-tax jurisdictions), subject to treaty relief. Deductibility of interest is limited by Brazil’s thin-capitalisation and transfer pricing rules. 5.4 Multiple Investors In Brazil, private equity transactions involving multiple sponsors (club deals) and co-investments alongside the lead fund/GP have become increasingly common, particularly in larger-scale deals. These structures are
In public company transactions, Brazilian law man - dates the launch of a tag-along OPA upon a change of control, requiring the acquirer to offer minority share - holders voting shares at no less than 80% of the con - trol price (Article 254-A, Brazilian Corporations Law). Enhanced protections are also available under B3’s premium listing segments. The Novo Mercado requires 100% tag-along rights for common shares, while Level 2 requires 100% tag-along rights for both common and preferred shares under the listing rules. For delistings, an OPA will be deemed successful upon acceptance by holders of two thirds of the free float. CVM Resolution No 215 introduces calibrated alternatives for scenarios involving very low free float, In Brazil, private equity-backed acquisitions are typi - cally structured through a special purpose vehicle (SPV or BidCo), generally incorporated as a limited liability company ( limitada ) or a corporation ( socie- dade por ações ), and directly or indirectly controlled by the private equity investment fund (FIP). The use of an SPV ring-fences liabilities, optimises tax efficiency, facilitates acquisition financing and provides greater flexibility for future divestments. effective as of 1 October 2025. 5.2 Structure of the Buyer As a general rule, the FIP itself does not execute the main acquisition or sale agreements. Instead, it remains as a quotaholder or shareholder of the SPV, intervening only in specific circumstances, such as making capacity representations or complying with regulatory requirements imposed by authorities such as the CVM, CADE or BACEN. Depending on the transaction design, commercial arrangements and agreed risk allocation, the FIP may exceptionally be required to act as a direct party to the transaction, thereby expressly assuming contrac - tual obligations. However, market practice strongly favours the use of acquisition vehicles, with the FIP maintaining an indirect role to preserve liability isola - tion and regulatory compliance.
39 CHAMBERS.COM
Powered by FlippingBook