Debt Capital Markets

The cheapest route on paper is rarely the cheapest in practice

Piz Bernina and the Biancograt · St. Moritz

The shape of the practice

We structure financing for mid-sized private companies, from bank credit to capital markets issuance, including development finance lines such as FINEP and BNDES. We compare routes by effective cost, not by nominal rate

Typical engagements

Financing from FINEP
BNDES and state development finance lines
Debentures and commercial notes
Agribusiness and real estate receivables certificates
FIDCs (receivables investment funds)
Structured bank credit
Comparison of routes by effective cost
Renegotiation of bank liabilities

The comparison of routes

The fixed structuring cost is what defines the size at which the capital markets pay off. On a small issuance, it consumes a share of the proceeds that no rate saving can recover

The indenture

The document matters more than the spread. Covenants, events of acceleration, guarantees and reporting obligations constrain the company's management for the entire tenor, and are almost never read before signing

Development finance and subsidised credit

FINEP, BNDES and state lines offer rates well below market for innovation, expansion and efficiency projects. The rate is real, and so are the obligations: restrictions on use, performance commitments, reporting and oversight for years after disbursement. We structure the application and calculate the total cost, including the team time that reporting consumes

The guarantees

Much of the credit to the Brazilian middle market is backed by a personal guarantee (aval) from the owner. It does not transfer with the company, and the guarantor cannot release himself unilaterally

Execution

Preparation of materials, management of discussions with banks, underwriters and investors, and negotiation of terms through to settlement

The process

How the work runs, phase by phase

Financing structuring

From diagnosis to settlement

A process of comparing routes by effective cost, not a search for a rate

Needs assessment
How much, for what, for how long and from what cash generation it is repaid. Poorly sized financing is costly both ways, through excess and through shortfall
Debt capacity
Analysis of normalised earnings, existing debt service and the headroom the transaction allows without stalling growth
Comparison of routes
Bank credit, debentures, receivables certificates, receivables funds and development finance lines, compared by total effective cost, including structuring, maintenance and obligations
Preparation of materials
Preparation of the credit materials, the model and the documentation required by the chosen route. For development finance lines, this includes structuring the project
Marketing
Simultaneous engagement with banks, underwriters or investors, so that the comparison is real and not sequential
Terms and indenture
Negotiation of spread, tenor, guarantees and, above all, the covenants and events of acceleration, which constrain management for the entire tenor
Settlement and monitoring
Management through to disbursement of funds, and design of the reporting calendar the transaction then requires

The questions that start the work

What is the effective cost, rather than the rate?

The cost comes out of the amount raised itself, and the effective cost is always higher than the contracted one. In a subsidised line, it includes the obligations

What does the indenture restrict?

Poorly calibrated covenants lock up the company precisely when it needs headroom

Who guarantees, and for how long?

The personal guarantee survives the sale of the company and its judicial reorganisation

Size and fixed cost

The volume at which issuing pays off

Capital markets issuance usually prices tighter than bank credit, but it carries fixed structuring and maintenance costs that do not change with volume. Below a certain size, the annualised fixed cost exceeds the spread saving, and bank credit is the cheaper route

Illustrative: five-year issue with structuring costs of R$1.2 million and annual maintenance costs of R$250 thousand (trustee, registrar, rating, audit and listing), against a spread saving of 1.2 percentage points a year. Revenaz analysis

The instrument map

Each instrument needs its own collateral and speaks to its own investor

Instrument	Collateral	Typical investor	Usual tenor	Makes sense when
Bank credit (CCB)	Personal guarantee, receivables and cross-selling	Banks	1 to 5 years	The volume is too small to absorb the fixed cost of an issue
Commercial note	Secured, guaranteed or unsecured	Credit funds and treasuries	2 to 5 years	The company wants a first market access with lean documentation
Debenture	Unsecured, secured or backed by receivables	Credit funds, pension funds and banks	3 to 10 years	Volume is above break-even and the company accepts periodic reporting
Incentivised and infrastructure debentures	Project cash flow and shares of the special purpose company	Retail investors and infrastructure funds	7 to 15 years	The project qualifies as a priority under Laws 12,431 and 14,801
CRA	Agribusiness receivables	Retail investors and funds	3 to 7 years	The company sits in the agribusiness chain and has eligible receivables
CRI	Real estate receivables or lease contracts	Retail investors and real estate funds	5 to 15 years	There is real estate backing, such as a built-to-suit lease or unit sales
FIDC	Receivables portfolio with a subordinated tranche	Funds and professional investors	Revolving	The company has granular, recurring receivables
Development lines	Approved project, with collateral or bank guarantee	Finep, BNDES and state agencies	5 to 16 years	There is an eligible innovation, expansion or efficiency project
Pre-export finance and ACC	Export contracts	Banks and trading houses	1 to 5 years	Revenue is exported and hard-currency cost makes sense

The indenture, clause by clause

What constrains the company for the full term

The clauseIf poorly calibrated

Maximum leverage

Net debt to EBITDA with a set ceiling. The right calibration starts from the business plan and the worst year of the cycle, not from the last fiscal year

A ceiling set in a good year breaks in the first bad one and accelerates the whole debt

Debt service coverage

Cash generation over interest and principal for the period. More demanding than leverage in a heavy investment year

Capex funded from own cash pushes the ratio down even when the company is healthy

Cross-default

Default on another debt above a minimum amount accelerates this one. The threshold and the cure period are what gets negotiated

A low threshold lets a small delay contaminate the entire structure

Change of control

A sale of control without creditor consent allows the debt to be accelerated. It links today’s financing directly to tomorrow’s sale

Without a carve-out for reorganisations, the sale of the company itself depends on the creditor

Dividend restrictions

A cap on distributions above the legal minimum while debt is outstanding, or subject to a ratio

The controlling shareholder stops receiving while the debt runs

Assignment of receivables

A minimum share of receivables flowing through a controlled account, tested periodically

A high percentage locks operating cash in the creditor’s account

Amendment quorum

The share of creditors required to grant a waiver or amend the indenture

A high quorum with a dispersed base makes any renegotiation slow and costly

Collateral

Every guarantee has a cost that does not show in the rate

Personal guarantee (aval)

Costs nothing at signing and a great deal later: it survives the sale of the company and its judicial reorganisation

Fiduciary lien on real estate

Lowers the spread, but ties up the asset and requires appraisal, registration and top-up if value falls

Fiduciary assignment of receivables

Sits outside the effects of judicial reorganisation, which is why creditors value it most

Pledge of shares

Gives the creditor a path to control of the company upon default

Reserve account

Part of the proceeds held back to cover debt service, raising the effective cost of the money actually used

Guarantee funds

Public guarantee funds for the mid-market that replace part of the personal guarantee against a fee

Speak with the responsible partner

There is no screening. The conversation begins and ends with the person running the transaction

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