Gustavo Rugani and Guilherme Azevedo   Edited on July 31, 2015, Ruling No. 566 of the Brazilian Securities Commission will bring important changes to the regulation of public offerings of Promissory Notes ("PNs").   The main change relates to the maximum maturity of PNs. Currently, this term is 180 days per series for closely-held companies and 360 days per series for publicly-held companies. With this change, PNs will have, as a rule, a maturity of 360 days, regardless of whether or not the issuer is registered as a listed company before the Brazilian Securities Commission. However, this limitation does not apply to all public offering of PNs. Those with limited placement efforts, carried on in accordance with CVM Ruling No. 476 (where there is a demand limit of 75 investors, of whom only 50 will be able to subscribe for and pay in the PNs) and relying on the presence of a trustee for the holders of PNs will not be subject to the limitation period of 360 days.

Gustavo Rugani and Guilherme Azevedo

Edited on July 31, 2015, Ruling No. 566 of the Brazilian Securities Commission will bring important changes to the regulation of public offerings of Promissory Notes ("PNs").

The main change relates to the maximum maturity of PNs. Currently, this term is 180 days per series for closely-held companies and 360 days per series for publicly-held companies. With this change, PNs will have, as a rule, a maturity of 360 days, regardless of whether or not the issuer is registered as a listed company before the Brazilian Securities Commission. However, this limitation does not apply to all public offering of PNs. Those with limited placement efforts, carried on in accordance with CVM Ruling No. 476 (where there is a demand limit of 75 investors, of whom only 50 will be able to subscribe for and pay in the PNs) and relying on the presence of a trustee for the holders of PNs will not be subject to the limitation period of 360 days.

Although trustees are widely known and used in public offerings of debentures, it was already common practice in issues of PNs to rely on securities agents, whose role is quite similar to that of trustees.

Another important change in the regulation of public offerings of PNs is the explicit inclusion in the text of the law of possible issues of these securities by limited liability companies and agricultural co-operatives. It is important to stress that, in a public issue of PNs, according to a distribution mechanism with limited placement efforts, the limited liability companies and agricultural co-operatives shall comply with certain rules applicable today exclusively to corporations, such as, for example, the publication of material facts and the performance of an audit by an external auditing firm registered with CVM.

In addition, the new rule sets forth procedures for the automatic registration of public offerings of issuers who are registered as listed companies with CVM, and brings an innovation: the companies >

Historically, the volume of public offerings of PNs has been considerably lower, as compared to that of public offerings of debentures, an instrument that is more popular and commonly used to raise funds through the issuance of debt securities. The volume of issues of debentures was, respectively, R$88.4 billion, R$66.1 billion, and R$70.6 billion in 2012, 2013, and 2014.  Comparatively, the issues of PNs represent volumes of R$22.7 billion, R$20.8 billion, and R$30.5 billion in the same periods.

It is expected that, with the new rules on public offerings of PNs, especially with the possibility of longer maturity periods for these securities, the volume of issues of PNs may increase considerably. Therefore, the PNs may no longer be short-term debt instruments commonly used in bridge loans, assuming a greater role in debt capital markets and rivaling with debentures in several financing structures.

The new rules on public offerings of PNs become effective on October 1, 2015.