Ricardo Barretto Ferreira and Camila Taliberti
On August 25, 2016, the Brazilian Development Bank (BNDES) launched a Program to Promote the Revitalization of Productive Assets (Programa de Incentivo à Revitalização de Ativos Produtivos – PROGEREN), the main purpose of which is encouraging the transfer of productive and economically viable assets held by insolvent companies to companies willing to purchase them for the purpose of undertaking an economic activity.
The BNDES support can occur under a direct or indirect manner. The direct support is allowed if the insolvent company is “in economic-financial crisis or high risk of credit”, at the discretion of BNDES, through the granting of loans or introduction of securities subscription mechanisms. The indirect support is performed by financial institutions accredited by BNDES but only if the company is undergoing bankruptcy or judicial or extrajudicial recovery proceedings.
Funding can be applied for by companies and cooperatives with headquarters and administration in Brazil, under the following conditions:
- purchaser must demonstrate management capacity and economic-financial situation compatible with the acquisition and assets’ exploitation as well as with the applied-for financing;
- purchaser must have financial statements audited by an independent audit firm with registration at the Brazilian Securities and Exchange Commission (“CVM”);
- purchaser may not: (i) integrate the same economic group as the seller’s; (ii) be a related party to the seller; and (iii) be identified as the seller’s agent.
Among the assets to be financed there are industrial units, commercial facilities, and equity holdings representing the company’s control or part of the block control; and the financing can extend to the acquisition of real estate, used machinery and equipment, and intellectual property rights.
Studies, projects, consulting and auditing, as wells as working capital associated with the purchase and initial operation of the assets can also be financed, provided that they are linked to the purposes of the program.
The funding interest rate follows the referential market costs and/or the financial cost corresponding to any pre-existing credit from BNDES to the seller company, with a basic 1.5% p.a. spread plus risk spread to be calculated based on the available information about the purchaser.
Such Program has a budget of BR$ 5 billion (five billion Reais) and will be in effect until August 31, 2017. The reimbursement term is 10 (ten) years.
In addition, BNDES has extended the Support Program to Strengthen Capacity of Generating Employment and Income (Programa de Apoio ao Fortalecimento da Capacidade de Geração de Emprego e Renda or PROGEREN) until December 31, 2017, and has increased its budget to BR$ 10 billion.
PROGEREN aims at granting working capital loans up to a limit of BR$ 70 million with lower financing costs. The lowest rates are for micro, small and medium-size companies. For this group, the interest rate was reduced from 10.2% to 9.5% p.a.; for medium-large companies (with annual turnover between BR$ 90 million and BR$ 300 million), the rates were reduced from 14.61% to 13.06% p.a.; and for large companies (with annual turnover above BR$ 300 million), the overall rate dropped from 17.11% to 16.61% p.a.
São Paulo, September 12, 2016
Ricardo Barretto Ferreira is partner, and Camila Taliberti is associate of the Azevedo Sette Advogados.