Author: | Published: 10 Oct 2001
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Brazilian regulators are making great efforts to create an appropriate environment for the development of the securitization market in Brazil. A recent domestic example of these efforts was the proposal by the Central Bank of Brazil of a new resolution (now subject to public hearing) providing for the incorporation of receivables investment funds (Fundos de Investimento em Direitos Creditórios) and their derivative – investment funds in quotas of receivables investment funds (Fundos de Aplicação em Quotas de Fundos de Investimento em Direitos Creditórios).

The proposed regulation, if approved, will foster creative structures through either the replacement of the traditional special purpose companies (SPCs) as the transaction vehicle with a receivables investment fund, and/or grouping investors in a derivative fund to acquire quotas of the receivables investment fund vehicle.

Such a regulation would facilitate the participation of pension funds and similar institutional investors in securitization transactions, and would probably represent the greatest incentive ever to be implemented following the enactment of Brazil's very first rule governing securitization.

It is not only in the domestic market that securitization regulations have developed. Over the last five years, other special rules for securitization have emerged, two of which directly relate or easily apply to cross-border financing transactions: the regulation governing the securitization of banking transactions and the regulation governing export receivables transactions.


On May 7 1998, the Brazilian National Monetary Council (CMN) enacted Resolution CMN No 2493/98 (now superseded by Resolution CMN No 2686, dated January 26 2000). The innovations introduced by Resolution CMN No 2493/98 permitted receivables held by financial institutions in connection with their products and activities (such as loans and leasings) to be assigned to non-financial entities, if and when such non-financial entities were organized as special purpose companies (SPCs).

Prior to Resolution CMN No 2493/98, the regulatory framework for securitization transactions in Brazil was mainly based on Resolution CMN No 2026, dated November 24 1993. Under the former system and subject to few exceptions, financial credits deriving from banking activities could not be assigned to non-financial institutions. This limitation was in line with the general government policy of restricting the circulation of financial credits beyond the financial system, which was ultimately aimed at protecting public savings.

Under Brazilian law, a typical SPC is not regarded as a financial institution and thus was prevented from acquiring financial receivables. For a long time, this limitation inhibited the structuring of securitization transactions backed by financial receivables in Brazil.

Under Resolution No 2493/98 (and the subsequent regulation), the assignment of financial debt to non-financial institutions became legal, provided that the acquirer (the SPC) met certain requirements established by the Central Bank of Brazil.

Accordingly, the securitization of banking receivables requires, among others, that:

  • the SPC's corporate purpose be limited to the acquisition of banking receivables (rather than the acquisition of general "credit rights", as previously referred to in Resolution No 2026/93);
  • the SPC's name includes the expression "Financial Debt Securitization Company" (Companhia Securitizadora de Créditos Financeiros); and
  • the SPC be subject to certain information filing requirements before the Central Bank of Brazil (these information obligations are aimed at granting appropriate control by the Central Bank of Brazil over transactions or proceeds and risks that ultimately result from the use of public savings, so as to fulfill the aim of protecting the general public).

As a result, since the enactment of the 1998 rules, banks in Brazil have been able to broaden their roles in securitization transactions from their traditional positions as credit analysts and investors to that of originator of assets (banking receivables) to be securitized.

By assuming this new role, banks – as any other originator company – will be able to write off securitized loans from their balance sheets. Therefore, the natural expectation is that, by doing so, they will be able to increase their ability to originate more loans without threatening their solvency or contravening investment diversification regulations.

In this respect, securitization will be an important tool in the consolidation of the Brazilian banking system, as has been the case in some other jurisdictions. For instance, some authors give the UK example: during the late 1990s, investors and government authorities wanted to enhance banks' and similar entities' capital ratios. By giving banks a good alternative for adjusting their balance sheets, securitization made their assets more liquid, thereby positively impacting their capital ratios.

Thus, the new regulatory system concerning receivables originating from banking activities can be especially effective in strengthening the structuring of creative forms of international financing transactions.


Securitization based on exports is the oldest form of securitization specifically regulated by the Central Bank of Brazil. The National Monetary Council first issued regulations on export securitization on June 26 1991, under Resolution No 1834. This resolution gave export companies the option of offering receivables under export transactions as collateral for funds raised abroad, either directly or through an affiliate company, regardless of whether they were incorporated as a SPC (although to pass the "true sale" bankruptcy test in Brazil, it is always advisable to incorporate a SPC as the vehicle to acquire the export receivables and issue securities backed by such receivables).

Nowadays, after the issuance of Central Bank of Brazil Circular No 3027 in February 22 2001, which governs, among other things, the registration of export securitization transactions, the range of companies that may perform export securitization transactions has been broadened, because the circular allows funds raised outside Brazil to be secured by exports by companies that do not form part of the same economic group as the borrower. In other words, it is no longer necessary for the company raising capital overseas backed by export receivables to have an export company in its corporate group: the borrower can now acquire export receivables from an unrelated company and offer them as collateral to the foreign lender.

There is another incentive to the structuring of securitization transactions backed by export receivables, which is also a crucial and determining factor in increasing foreign creditors' level of confidence in export securitization – especially if account is taken of the fact that Brazil is considered by the international financial community as an emerging market. The incentive is that investors have direct access to export revenues in foreign currency, eliminating the currency exchange risks that would exist if the receivables were received in the originator company's own territory and currency.

In fact, the applicable regulation on export securitization allows the maintenance of an account outside Brazil to which payments made by the final debtor in connection with the goods exported by the originator company may be directed. The amounts deposited in this account may be controlled by a trustee, such as in a typical securitization structure, so that the securitized structure captures the funds before they are remitted to Brazil.

Theoretically, this structure design is feasible not only in relation to export transactions but whenever the final obligor under the collateral assets is located outside the originator company's country, and the payment obligations in connection with them are denominated in foreign currency. However, assets deriving from exports have the natural ability to act as collateral in cross-border debt transactions because of the debt standardized instruments and the usual existence of a constant cash flow of receivables. Another natural source for cross-border securitization transactions involves the use of long-distance and telephone credits, airline receivables, credit card receivable, ticket credits. At least one transaction of this type involving a public company has been implemented in Brazil in the past few years.

The downside of the export securitization rules in Brazil is the obligation that, regardless of any other collateral that may be offered to the foreign creditor, the money on deposit in the account abroad must be invested when not in use, and any losses in the foreign bank account cannot be covered by the Brazilian entity. In other words, money cannot be remitted from Brazil to cover losses arising from poor investment policies that affect the money deposited in the account.

Another important limitation on the securitization of exports is that amounts deposited in the special account cannot at any time exceed 100% of the next installment coming due. Accordingly, over-collateralization solely with funds deposited in the special account is not permitted and, when investors require an over-collateralized transaction, additional forms of collateral must be provided. Most probably, the additional collateral will not be free from currency risks, as in the case of collateral deposited in the special account.

Because of the advantages of the securitizaton of exports vis a vis securitization backed by other types of receivables, securitization of exports is the most commonly used structure in international financing transactions involving Brazilian companies.


The securitization of receivables in connection with foreign debt incurred by Brazilian companies, whether by means of a securitization structure that is specifically regulated, such as the export securitization or the banking financing securitization transactions discussed above, or under a general securitization model, must follow the general rules applicable in Brazil to international financings.

Structuring such transactions is becoming simpler and less bureaucratic. Classic securitization instruments are easily adapted to international transactions involving Brazilian parties, which can be registered relatively easily with the Central Bank of Brazil.

The creation of escrow accounts, sinking funds and other collateral security in favour of foreign creditors is also possible, although not specifically regulated by the Central Bank of Brazil.

Additionally, the registration of international transactions with the Central Bank of Brazil has recently been simplified through the streamlining of the steps that parties must take to register their transactions (such as prior approval by the Central Bank of Brazil, in some cases). Transactions are now registered through an electronic system and registration is only rejected if the Central Bank of Brazil believes that the costs of the transaction are inconsistent with usual market practices or if the structure of the proposed transaction does not meet the standards of the system. Changes in the beneficial owner of the collateral/the debtor under the international financing transaction is also permitted as long as the Central Bank of Brazil is duly informed of this change.


Nowadays, Brazil is a jurisdiction that is more attractive for both residents and non-residents wishing to invest their funds through structured financing transactions, in particular through securitization deals. In fact, during the past few years, Brazil has developed a modern legal framework for such transactions, establishing relatively few restrictions as compared to other emerging markets' legal systems. Moreover, securitization transactions in Brazil have passed at least once the true sale bankruptcy test, not to mention the growing use of this mechanism by government-owned companies.

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