Resolution No. 4,751 of the National Monetary Council (CMN), issued on September 26, regulated the possibility of settlement through redemption and offer of redemption of debentures supported by Law No. 12,431/11, which deals with raising funds for infrastructure investment projects. This scenario was prohibited under the terms of subsection II of the sole paragraph of article 1 of that law.
The change offers more security for companies to issue this type of security, as they can better manage their debt without being exposed to inflexible debt in the Brazilian capital markets.
To perform the early redemption provided for in the resolution, the issuing company must meet all of the following requirements:
- The weighted average term of the payments elapsed between the issue date and the settlement date of the debentures must be greater than four years, calculated in accordance with CMN Resolution No. 3,947/11;
There must be an express provision in the Indenture Instrument regarding the possibility of early settlement of the debentures and regarding the criteria for determining the amounts to be paid to debenture holders upon settlement;
The prepayment fee is less than or equal to the sum of the government bond rate yielded by the same debenture index with the duration closest to the debenture duration on the early settlement date, with the spread over the federal government bond rate remunerated per the same index as the debenture with a duration closest to the duration of the security on the issue date; and
There must be provision in the Indenture for possible early settlement dates at intervals of not less than six months between them and the calculation formula that will be used at the time of settlement.
The latter two requirements may be disregarded if debentureholders representing at least 75% of outstanding debentures approve the settlement. This approval must be formalized by means of a resolution at a meeting of debentureholders or accession to the purchase offer made by the issuing company, in compliance with the rules issued by the Brazilian Securities and Exchange Commission (CVM).
The early settlement must be performed via the total early redemption of the same series (infrastructure) debentures, and partial early redemption is not allowed.
The new rules apply to debentures issued after publication of the resolution, which entered into force on September 26.