Brazilian Banks And Other Financial Institutions Are Now Authorized To Issue Financial Bills

Long-term financing in Brazil has been traditionally granted to Brazilian companies by the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) and the domestic banks have limited their activities to short-term and medium-term loans. Now, this situation is about to change because, by means of Provisional Measure (Medida Provisória) No. 472 of December 15, 20091 (MP 472/2009), the Brazilian Executive Branch authorized the Brazilian financial institutions to issue a new financial instrument known as Financial Bill (Letra Financeira – LF)2, which will also be governed by the legislation applied to the other Brazilian credit instruments3 to the extent that such legislation does not conflict with the provisions of MP 472/2009.

Pursuant to MP 472/2009, the LF is a credit document that constitutes a promise of payment in cash, issued in the registered form, which may be transferred to third parties and it is freely negotiable. It must be exclusively issued in book-entry form, through the registration in a registry and financial settlement of assets system authorized by the Central Bank of Brazil (Banco Central do Brasil – Bacen).

The LF must contain the following characteristics: (i) the title "Letra Financeira"; (ii) the name of the financial institution, which is the issuer; (iii) the number of order, the place and the date of issuance; (iv) the par value; (v) the applicable interest rate, which may fixed or floating, being admitted the capitalization of interest; (vi) the exchange correction clause (if any); (viii) other forms of remuneration, including those based on an index or a rate of public knowledge (if any); (ix) the subordination clause (if any); (ix) the maturity date; (x) the place of payment; (xi) the name of the person to whom it should be paid; (xii) the description of the in rem or personal guarantee (if any) and (xiii) the periodical payment of earnings clause (if any).

Furthermore, the LF is an extrajudicial executive instrument, which may be executed regardless of protest based on a certificate containing all the informational data registration, issued by the entity authorized by Bacen to administrate the above-mentioned registry and financial settlement of assets system. Depending on the remuneration criteria, the LP may generate a redemption value inferior to its issuance value. Its transfer of ownership is made by through the above-mentioned registry and financial settlement of assets...