Created by Law No. 13,097/15 (resulting from the conversion of Provisional Measure No. 656/14), LIGs meet the objectives of real estate development set forth in the BC+ Agenda, Bacen’s Credit Pillar. They present themselves as an advantageous alternative for real estate financing since they are instruments secured both by the issuing institution's equity (as are, as a rule, the Letters of Real Estate Credit - LCIs, commonly issued without collateral) as well as by a portfolio of assets (which endow the LIGs with a kind of backing constituted as equity, similar to the Real Estate Receivables Certificates - CRIs). Fiduciary and/or real guarantees for issuances of LIGs may also be established.
Some of the main features of the regulation on the issuance of LIGs are summarized below:
General characteristics of LIGs: nominative, transferable, and freely negotiable instrument secured by a portfolio of assets, which in turn is constituted as a segregate estate (that is, such asset portfolio is not subject to attachment or any other type of restriction, and will not be affected in cases of insolvency, intervention, extrajudicial liquidation, or bankruptcy of the issuing institution).
Remuneration: based on fixed and/or floating interest rates, as well as other rates, as long as publicly known and regularly calculated.
Issuing institutions: multiple banks, commercial banks, investment banks, credit, financing and investment companies, savings banks, mortgage companies, and savings and loan associations. Among other conditions, issuing institutions must fully comply with regulatory capital rules and must (together with the fiduciary agent) indicate to the Bacen an officer responsible for the LIG issuance transaction.
Special amortization regime: in the event of a decree of intervention, extrajudicial liquidation, bankruptcy of the issuing institution, or recognition of its insolvency by the Bacen, LIGs shall be subject to a special amortization regime, provided that the payment of the principal amount of the LIG is not made at maturity.
Repurchase and early redemption: as a rule, the issuing institution is not allowed to redeem in advance or to repurchase the LIG, in whole or in part, within 12 months of its issuance date.
Early maturity: the early maturity of LIGs is forbidden, except in the event of recognition of insolvency of the asset portfolio, in which case the conditions of payment of the obligations related to the LIG must be established according to the criteria defined in the special amortization regime.
LIG issuance program: issuing institutions may establish a LIG issuance program, thereby making series issuances, composed of one or more LIGs secured by the same portfolio of assets.
Asset portfolio composition: the asset portfolio can only be composed by (i) real estate loans (those consisting of financing for the acquisition or construction of residential or non-residential property, corporate financing for the construction of residential or non-residential real estate and loans to individuals with a mortgage guarantee or clause for sale of residential real estate); (ii) bonds issued by the National Treasury; (iii) derivative instruments (provided that they are exclusively intended to hedge); and (iv) cash and cash equivalents from the assets included in the asset portfolio. The sum of the updated nominal values of the real estate credits, including the value of the derivative instruments, shall represent at least 80% of the total updated face value of the asset portfolio.
Eligibility of real estate credits: real estate loans may only be included in the asset portfolio if they fulfill the eligibility conditions set forth under the regulations, among which are that they: (i) must be performing; (ii) must be free of any type of liens, except those related to the guarantee of the rights of the holders of the LIGs; (iii) must be secured by a first mortgage or fiduciary sale of immovable property (except in cases of credits arising from financing for a legal entity for the construction of residential or non-residential real estate); (iv) in the cases of financing for a legal entity for the construction of residential or non-residential real estate, the real estate development underlying the transaction must be subject to the applicable regime; (v) the credit risk classification of the transaction must not be less than "B"; and (vii) there must be insurance coverage, under the terms of the regulations, in cases of a transaction with an individual for acquisition or construction of residential or non-residential property and a transaction for construction of residential or non-residential property by a legal entity.
Fiduciary agent: the following may act as fiduciary agent: (i) institutions authorized to issue LIGs; (ii) real estate securitization companies; (iii) securities brokerage companies; and (iv) securities distribution companies. The fiduciary agent shall be vested with a mandate to administer the asset portfolio in the event of intervention, extrajudicial liquidation, or bankruptcy of the issuing institution, or recognition of its insolvency by the Bacen.
Deposit and registration: the issuance of the LIGs must be registered with a central depository authorized by the Bacen, under the terms of Law No. 12,810/13, and the assets that make up the asset portfolio must be deposited or registered with an entity authorized by the Bacen.
Notwithstanding the expectation that supplementary regulations will be issued in the coming weeks (mainly related to accounting rules), as of now authorized institutions may issue LIGs, and the market may have one more source of funds for the encouragement and development of the real estate segment in Brazil.