BRAZIL Law and Practice Contributed by: Caio Ferreira Silva, Thiago Braga Junqueira, Vinícius Pimenta Seixas and Rodrigo Vieira, Pinheiro Neto Advogados
14.75% in May 2025. In addition, raising funds through Brazilian companies is burdensome, considering the highly regulated and intricate legal and regulatory framework for such market structures. On top of these hurdles for leveraged acquisitions, the highly unstable exchange rate of the Brazilian real and consequent expensive hedging costs contribute to the maintenance of a still underdeveloped secondary market and a very high concentration of direct loans in the acquisition finance space. Therefore, leveraged buyouts (LBOs), as they are known in the US market, are not typically available in Brazil; in most cases, lenders extend credit facilities or loans to buyers considering their credit risk, to fund M&A deals, rather than lending money to the target companies. Other reasons behind the low level of LBOs in Brazil are that the secondary market for securities is somewhat limited, and that the high cost of debt discourages companies from issuing long-term debt securities for financing their acquisitions. In any event, leveraged levels tend to be compara- bly low in Brazil. Nevertheless, a number of international private equity powerhouses have recently landed in the onshore market, helping to foster LBO-like structures tailored to fit within local peculiarities.
A very common alternative for extending credit to local companies is via bank credit certificates (CCBs), which are instruments issued by obli- gors to represent a debt obligation vis-à-vis a lending bank. Under such an arrangement, the creditor bank may negotiate the CCBs in the secondary market as security and sell the cer- tificates to third parties. Therefore, such instru- ments are widely used for credit securitisation structures. More recently, there has been a trend for the issuance of corporate notes ( notas com- erciais ) in the market as a financing instrument, including due to their flexible and less stringent legal framework. Certain leveraged acquisition structures with specific local characteristics are becoming more common in Brazil, mimicking US LBO deals by incorporating SPVs that take on debt to finance the acquisition in the form of a loan or via debt securities. Upon the purchase of the equity inter- est in the target company, the SPV merges into the acquired entity, which succeeds the SPV in all its rights and obligations (including with respect to the loan or debt), having the same effect as a debt taken by or contributed to the target company itself. There has also been a significant increase in structures involving the issuance of debt secu- rities in the form of bonds (debentures) over the past ten years. In terms of documentation, such transactions require the execution of: • a debenture indenture by and between the lender(s) (or a fiduciary agent for the lenders) and the debtor; • a subscription agreement for the bonds (debentures); and • if the securities are publicly offered, a dis- tribution and/or underwriting agreement – such offering may require a prospectus and
2. Documentation 2.1 Governing Law
As a large portion of financing transactions are carried out by means of corporate direct loans, their structures frequently follow a relatively standard set of documents, including a loan agreement and other ancillary security or guar- antee documents.
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