Offerings of Brazilian Real Estate and Agribusiness Receivables Certificates (known as CRI and CRA) more than doubled in the 1st quarter, compared to 2023, reaching approx. BRL30 billion.
When structuring offerings of CRI and CRA in Brazil, legal due diligence on the debtor company, guarantors and securitized receivables is key to the security of investors and offering participants, such as the securitizer, fiduciary agent and custodian.
See below points of attention related to the legal due diligence of CRI and CRA processes:
1. Legal Due Diligence Points Regarding the Debtor Company: In offerings of Real Estate Receivables Certificates (CRI) and Agribusiness Receivables Certificates (CRA), it is important to review the following aspects linked to the Debtor Company (which transfers the receivables for securitization): (i) constitution, contractual changes and agreements with shareholders and investors, (ii) corporate records and any guarantees on shares and dividends, (iii) administrative and judicial proceedings of a civil, labor, tax, environmental, criminal nature, among others, (iv) contractual covenants, tax restructurings, financial statements (v) direct or indirect liabilities materialized or with the potential to materialize on the Debtor that may impact the company, its shareholders, receivables and guarantees.
2. Points of Legal Due Diligence on Receivables: Critical point of CRI and CRA offerings, the legal diligence on receivables to be securitized must involve (i) the analysis of purchase and sale contracts, lease, among others (in the case of CRI) and rural product notes, lease, among others (in the case of CRA), its positive and negative obligation clauses, irrevocability, maturity, contractual charges, (ii) the review of possible existing or potential encumbrances in favor of third parties, (iii) the analysis of direct or indirect liabilities materialized or with the potential to materialize on receivables.
3. Points of Legal Due Diligence Regarding Guarantors: CRI and CRA offerings generally include guarantors fiadores and avalistas related to the debtor company (controlling shareholders), companies in the economic group and related individuals.
Carry out due diligence on (i) the guarantors’ constitution, contractual changes, registrations and agreements with shareholders, (ii) possible guarantees on shares and dividends, (iii) equity situation, (iv) administrative and judicial processes of a civil, labor, tax, environmental, criminal nature, among others that may impact the financial situation, (v) contractual covenants, (vi) direct or indirect liabilities materialized or with the potential to materialize that may impact the equity.
The growing volume of CRI and CRA offerings shows the relevance of these capital market instruments for real estate and agricultural companies, and careful legal due diligence on the debtor company, receivables and guarantors is a key point for legal security for investors and participants in the offering.
