Machado Meyer Advogados has helped the payment services platform of Brazilian e-commerce group Mercado Livre set up a receivables investment fund (FIDC) and make the fund's first issuance worth 1.1 billion reais (US$186 million), amid the implementation of new local financial regulation.

Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados helped Brazilian investment bank XP and Banco Itaú structure the fund. The firm also advised the banks as underwriters in the issuance.

The fund is one of the first to be structured amid the implementation of new financial regulation in Brazil, which requires banking institutions to declare credit and debit receivables that are used as collateral against asset-backed securities with the Central Bank. The new rules came into force on 17 February. The changes were due to become official last August but faced delays amid the covid-19 pandemic.

“The deal is the first of its kind,” says Machado Meyer banking partner Eduardo Castro, who worked on the matter. The fund was structured over the course of last year and was tailored to meet the new guidelines before they came into force, he explains.

As the enforcement date of Brazil’s new finance regulation continued to move throughout 2020, the structure of Mercado Livre’s fund was given a hybrid feature to ensure it was a feasible instrument both in the context of the previous regulation as well as within the new legal framework. “We do not know of any similar structures that are out there at the moment,” says Machado Meyer associate Jessica de Alencar Araripe.

The FIDC, named Arandu, was set up to provide income to shareholders of Mercado Livre, the Brazilian arm of Argentine e-commerce group Mercado Libre. The company will also use the proceeds raised in issuances to fund corporate purposes, such as pre-paying fees relating to credit and debit transactions on its online marketplace, Mercadopago.

In the first offering, Mercado Livre issued 1 million senior quotas and 70,000 subordinated quotas through the Arandu fund at a value of 1,000 reais (US$178) per unit. The debt has a two and a half years term and carries an interest of 1.75%.

FIDCs are a type of investment vehicle used in Brazil similar to consumer loan securitisations and are backed by receivables, credit card payments and other financial assets.

The new financial regulation comes under the umbrella of Brazil’s new open banking framework, the first phase of which was introduced on 1 February. The new regulatory framework allows banks, fintechs and other financial companies to share consumer’s financial data between themselves using application programme interfacing (API) technology. The four-phase open banking roll-out is expected to be complete by the end of 2021, allowing businesses and banks to streamline digital payment services and centralise online banking. Earlier this year, UK open banking group Raidiam struck a deal with a consortium of Brazilian banking associations to help the country’s major financial institutions roll out open banking in Brazil.

Mercado Livre’s Argentine parent company is one of the largest online marketplaces and digital payment platforms in Latin America, with a presence in 18 countries. The company’s Mercadopago platform allows customers to open an online bank account and manage their payments in the company’s online store through a mobile application. Mercado Libre raised US$1.1 billion in an inaugural international debt tap in January, through which it also made a sustainable note issuance worth US$400 million.

Counsel to

Counsel to XP and Banco Itaú

  • Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados: Partners Bruno Mastriani Simões Tuca and Larissa Lancha Alves de Oliveira Arruy, and associates Raphael Silva Saraiva and Stephanie Hitomi Fugita

(Latin Lawyer - 5.3.2021)