A new market in lawsuits

Author: | Published: 1 May 2008

The development of the Brazilian financial and capital markets has created new investment opportunities. The securitisation of credits arising from lawsuits against governmental entities is one. Such credits have been considered by national and international financial institutions and hedge funds as a good opportunity to leverage and diversify investments, and have been widely-traded over the last year.

Whenever a government-owned entity is involved in a lawsuit as a defendant, and whenever it is sentenced (by a final award not subject to appeal) to indemnify the claimant, the indemnification must be paid through a particular mechanism in Brazil. This mechanism includes the issuance by the competent court of special bonds (precatórios) indicating the amount that the claimant is entitled to receive from a given public entity. This amount is not paid in cash, but within a period ranging from one to 10 years. It is allocated in the public budget of...