Sponsors

Domestic strategic players act as sponsors, often with decades of experience of operators of infrastructure and energy projects, bringing not only capital but also invaluable sector expertise, established relationships with regulators and a proven ability to navigate the complexities of the Brazilian legal and regulatory environment.

Brazilian and international construction conglomerates also play a pivotal role, especially in greenfield projects where construction risk is significant, providing both equity and technical support. Their involvement is often critical in the early stages of project development, where the ability to manage and mitigate construction risk can determine the overall bankability of a project.

In recent years, the market has also witnessed a marked increase in the participation of financial investors, including infrastructure, sovereign wealth, pension and private equity funds, particularly active in brownfield acquisitions and secondary market transactions, where operational assets offer more predictable cash flows and lower risk profiles.

Lenders

State-owned development banks, most notably the National Bank for Economic and Social Development (BNDES), remain the cornerstone of long-term infrastructure finance. BNDES provides Brazilian real-denominated loans with extended tenors and grace periods, often at preferential rates. In certain cases, BNDES may also provide financing indexed to foreign currencies. Regional development banks, such as Banco do Nordeste do Brasil and Banco da Amazônia, also contribute significantly, particularly within their respective geographic areas. Commercial banks, both domestic and international, are active across the project life-cycle, offering mini-perm facilities, working-capital lines, bridge loans and completion guarantees.

The participation of international banks is more common in projects with hard-currency revenues or export components, reflecting the global nature of many large-scale Brazilian projects. Multilateral and bilateral agencies provide hard-currency loans, political risk insurance and A/B loan structures. Their involvement is particularly significant in projects with strong environmental, social and governance (ESG) components or in sectors prioritised by the Brazilian government, such as sanitation, urban mobility and renewable energy. These institutions often bring not only financial resources but also technical assistance and policy dialogue.

The development of the local capital markets has been one of the most significant trends in recent years. Tax exempted debentures, issued under Law 12,431/2011, and the more recent infrastructure bonds under Law 14,801/2024, have attracted a broad range of investors, becoming an increasingly important source of long-term funding.

Law 11,079/2004, commonly referred to as the Public-Private Partnership (PPP) Law, applies to projects at the federal, state and municipal levels. This legislation introduced two principal types of concessions:

• Sponsored concessions: Hybrid revenue model combining user fees with government availability payments. The law generally limits the government’s contribution to 70% of total remuneration. This model is particularly prevalent in sectors where user fees alone are insufficient to ensure the financial viability of projects, such as sanitation and urban mobility.
• Administrative concessions: The government is the sole or primary payer, with the private partner being remunerated exclusively through availability payments. Typically employed in projects where the end user is the public sector itself, such as public lighting, public schools, public hospitals and prisons.

In addition to the PPP Law, Law 8,987/1995 and Law 9,074/1995 govern more traditional user-pay concessions, which are widely utilised in sectors such as highways, airports, ports and energy. The legal framework for PPPs and concessions in Brazil is underpinned by several key features and requirements. All PPPs and concessions must be awarded through a competitive public tender process, and the contracts are required to have a minimum value of BRL10 million and a term ranging from five to 35 years, reflecting the long-term nature and capital intensity of these projects. To enhance project bankability and mitigate risks, the legal framework provides for a broad array of government-support mechanisms such as step-in rights, collateral assignment of receivables, escrow arrangements and the use of surety funds.

Risk allocation is a central feature of PPP contracts in Brazil, with responsibilities typically set out in a detailed risk matrix. The objective is to assign each risk to the party best able to manage it, thereby optimising project outcomes and minimising the likelihood of disputes. The legal framework also incorporates mechanisms to restore the economic-financial balance of contracts in the event of unforeseen changes in law or other government actions, ensuring that projects remain viable and attractive to private investors.

The SPV: Most Brazilian project finance deals use a special purpose vehicle (SPV), typically incorporated as a corporation, allowing the effective ring-fencing of project assets, liabilities and cash flows and facilitating the allocation of risks and returns among the various stakeholders.

Capital structure and financial leverage: The capital structure is generally designed to optimise the balance between debt and equity, considering the risk profile of the project, the requirements of lenders and the expectations of sponsors. Senior secured debt is usually provided by a combination of development banks, multilateral agencies, and the issuance of infrastructure debentures and bonds in the local and international capital markets. Subordinated debt, including mezzanine notes and shareholder loans, may be used to enhance the capital structure, provide additional financial flexibility, and bridge any gaps between the senior debt and equity contributions. The typical debt-to-equity ratio remains around 70:30.

FX risk: While most projects are funded in Brazilian reais, reflecting the currency of the underlying revenues, there is a growing trend towards the inclusion of hard-currency tranches, particularly for export-oriented projects or those with US dollar-linked power purchase agreements. Nevertheless, currency risk remains a key concern, and sponsors and lenders often employ hedging instruments, reserve accounts or other contractual mechanisms to manage potential volatility in exchange rates.

Security package: Lenders typically require a comprehensive suite of collateral arrangements to secure their interests, including the fiduciary assignment of project receivables and bank accounts, fiduciary sale of movable assets, real estate mortgages or fiduciary conveyances, and pledges over the shares or quotas of the project company. In addition to asset-based security, lenders often require direct agreements with key project counterparties, providing for step-in rights, cure periods, and other provisions designed to protect the interests of lenders and ensure the continued operation of the project.

Contractual matrix: At its core are the engineering, procurement and construction agreements, which allocate construction risk and establish the terms for project delivery, performance guarantees and liquidated damages. Long-term offtake agreements are essential for securing predictable revenue streams and enhancing the creditworthiness of the project. Operation and maintenance contracts set out the terms for the ongoing management of the project, including performance standards, maintenance obligations, and remedies for non-performance. In the context of PPPs, government-support undertakings may be included to provide additional comfort to lenders, such as guarantees of minimum revenue, compensation for certain political or regulatory risks, or mechanisms for the restoration of the economic-financial balance of the contract in the event of unforeseen changes in law or government action.

Risk allocation: Risks are typically set out in a detailed risk matrix, with each risk assigned to the party best able to manage or bear it. To mitigate these risks, a range of tools may be employed, including performance bonds, parent company guarantees, equity support agreements, engineering wrap guarantees, and comprehensive insurance programmes covering construction, operational and third-party liabilities.

Regulatory and tax: Regulatory approvals may be required at various stages of the project, including environmental licensing, sector-specific permits and, in the case of PPPs and concessions, approvals from the relevant granting authorities. Tax considerations, such as the availability of incentives regimes, the deductibility of interest and the application of withholding taxes, are integral to the financial modelling and overall viability of the project.

The energy sector continues to be a dominant force, with the ongoing transition towards renewable sources and the decarbonisation of the national energy matrix driving a surge in utility-scale solar and wind projects. Brazil’s unique geographic and climatic conditions have positioned it as a global leader in renewable energy with a robust pipeline of solar parks and onshore and offshore wind farms, and the anticipated rollout of battery energy storage systems.

Transmission infrastructure is also experiencing new auctions and expansion projects designed to integrate remote renewable generation hubs with major consumption centres. The regulatory environment, underpinned by the national electricity regulatory agency ANEEL’s evolving framework and the government’s focus on modernising the grid, has created attractive opportunities for both domestic and international sponsors. In parallel, several large-scale green hydrogen hubs are under development, leveraging Brazil’s abundant renewable resources and proximity to European and North American markets.

The sanitation sector stands out as another pillar of activity, propelled by the 2020 New Sanitation Framework, setting ambitious targets for universal access to water and sewage services by 2033 triggering a wave of multibillion-real concessions and privatisations, with BNDES playing a central role in structuring and financing transactions across multiple states. The entry of private operators into historically public-dominated markets has not only increased competition but also raised standards for service delivery, efficiency and environmental compliance.

The transportation and logistics sector is also undergoing a period of intense renewal and expansion. The federal and state governments have announced a series of major toll-road auctions, with a combined investment exceeding BRL160 billion and covering more than 8,000 kilometres.

Digital infrastructure has emerged as a critical sector, reflecting the rapid digitalisation of the Brazilian economy and the exponential growth in data consumption. The deployment of data centres, fibre optic backbones and 5G neutral-host towers is being driven by both hyperscale technology companies and specialised infrastructure funds.

Real estate assets: These are commonly pledged as collateral through either a mortgage or a fiduciary conveyance. The mortgage is a traditional security right that requires the execution of a public deed and registration with the competent Real Estate Registry corresponding to the location of the property, granting the creditor a preferential right to be paid from the proceeds of the sale of the property in the event of default, but enforcement typically requires time-consuming judicial proceedings. The fiduciary conveyance has become the preferred mechanism for real estate collateral in project finance, transferring legal title of the property to the creditor as security, while the debtor retains possession and the right to use the property. The fiduciary conveyance must also be registered with the Real Estate Registry, and its main advantage lies in the possibility of extrajudicial enforcement.

Movable assets: These may be pledged through a civil or commercial pledge or, more commonly in project finance, through a fiduciary sale. The pledge requires the execution of a private agreement registration with the Registry of Deeds and Documents (RDD) granting the creditor a security interest but, in practice, enforcement may be subject to judicial proceedings unless the parties have agreed to an extrajudicial mechanism. The fiduciary sale of movables, on the other hand, is highly favoured in project finance due to its efficiency and creditor-friendly features as legal title to the asset is transferred to the creditor as security, with the debtor retaining possession and use. The fiduciary sale must be registered with the RDD at the debtor’s domicile, and, in the event of default, the creditor may repossess and sell the asset extrajudicially.

Credit rights: The fiduciary assignment is the most common structure, allowing the lender to take security over both present and future receivables. The assignment is perfected by executing a private agreement, providing notice to the underlying debtor, and registering the assignment with the RDD, enabling the lender to control the project’s cash flows through escrow accounts with disbursements governed by a pre-agreed cash waterfall and, in the event of default, to redirect payments directly to the secured parties.

This structure ensures that debt service and other critical payments are prioritised, and it provides lenders with early warning of potential cash flow shortfalls.

Shares or quotas: These are frequently pledged as collateral, either through a civil or commercial pledge or a fiduciary transfer. For corporations, the pledge must be annotated in the company’s share register and registered with the RDD, while for limited liability companies the pledge is typically reflected in an amendment to the articles of association and registered with the RDD.

Concession rights and PPP receivables: These are also eligible as collateral, but their assignment is subject to specific legal and regulatory constraints such as prior consent of the granting authority. However, certain assets, such as public pipelines or transmission lines, may be subject to restrictions on encumbrance or transfer, and the assignment of concession rights may be limited by the need to maintain the technical and financial qualifications required by the granting authority.

The concept of a floating charge, as commonly found in common law jurisdictions, does not have a direct equivalent in Brazilian law. Instead, the Brazilian legal system, rooted in civil law, requires that security interests be created over specifically identified assets or rights. However, the market has developed practical mechanisms to approximate the effect of a floating charge. One of the most effective tools in this regard is a fiduciary conveyance that allows the creation of security over a whole class of movable assets, both present and future, if they are determinable and sufficiently described in the security agreement. This structure is commonly used for equipment, inventory and other movable property that may be acquired or replaced over the life of the project. In the context of capital markets transactions, particularly debenture issuances, Brazilian law expressly permits the creation of a floating charge over the issuer’s assets, granting debenture holders a general privilege over the company’s assets, subject to certain limitations and the need for registration. Covenant-to-mortgage arrangements, whereby the debtor undertakes to grant additional security over future-acquired assets, are also used to enhance the scope of the collateral package.

Registration fees are determined at the state level and are generally calculated on an ad valorem basis, typically ranging from 0.1% to 0.8% of the secured amount. These fees are subject to caps, which vary depending on the type of registry and the state in which the registration is made. For example, the RDD often applies a cap of approximately BRL12,000 per document, while the Real Estate Registry may cap fees at around BRL40,000. Some states, such as São Paulo and Rio de Janeiro, have implemented policies to encourage digital filings, offering discounts of up to 50% for electronic submissions. In addition to registration fees, the execution of public deeds, which is required for certain types of collateral such as mortgages, incurs notarial costs, typically around 0.3% of the face value of the transaction, also subject to state-imposed caps.

The description of collateral in Brazilian security agreements is subject to strict legal requirements, reflecting the principle that security interests must be created over specifically identified assets or rights. In the case of movable assets, the security agreement must provide a clear and detailed description of the assets, including serial numbers, location and any other information necessary to distinguish the collateral from other property. For receivables, the law permits a more generic description, typically by reference to the underlying contract, the identity of the debtor and the nature of the payment stream. Future assets can also be included in the collateral package, provided that they are determinable at the time of enforcement.

The Brazilian Civil Code and the Brazilian Corporation Law require that any security or guarantee must serve a legitimate corporate benefit and lawful purpose. The absence of a clear corporate benefit may render the security or guarantee voidable, particularly in insolvency proceedings or in the context of challenges by minority shareholders or creditors. In addition, certain regulated assets, such as public pipelines, transmission lines, and other infrastructure subject to concession or regulatory oversight, may require the prior consent of the relevant regulatory authority or granting entity. Another important restriction arises from the financial-assistance rules applicable to Brazilian listed companies, which generally prohibit the granting of security or guarantees for the acquisition of their own shares or for the benefit of controlling shareholders, except in cases where a clear corporate benefit can be demonstrated.

Unlike some jurisdictions that maintain a single, centralised registry for all types of security interests, Brazil’s system is fragmented, with different registries for different asset classes and types of security. For real estate, lenders typically obtain certificates from the relevant Real Estate Registry covering a period of 20 or 30 years, which disclose any existing liens or encumbrances affecting the property. For movable assets, searches are conducted at the RDD at the debtor’s domicile, as well as in any other jurisdictions where the assets may be located. In addition, lenders may consult centralised databases maintained by credit bureaus such as Serasa, SPC Brasil and the Credit Information System (SCR) of the Central Bank of Brazil (BACEN). For specialised assets such as aircraft and vessels, certificates are obtained from the National Civil Aviation Agency and the Maritime Court respectively. Lenders also conduct searches of court records to identify any ongoing litigation or tax enforcement actions that could affect the collateral. Despite these efforts, the absence of a single national notice filing system means that there is always a residual risk of undisclosed or unregistered liens often requiring representations and warranties from the borrower, as well as covenants to maintain the collateral free and clear of liens throughout the life of the loan.

For most types of collateral, the process begins with the execution of a release instrument, which may take the form of a private release letter or, in the case of real property, a public deed executed before a notary. The release instrument must then be filed with the same registry where the original security interest was recorded. Upon receipt of the release instrument and payment of any applicable fees, the registry will annotate the cancellation of the security interest in its records, thereby extinguishing the lender’s rights and making the release effective against third parties. In the case of share pledges, the release must also be annotated in the company’s share register or, for limited liability companies, reflected in an amendment to the articles of association.

The enforcement of collateral is mostly triggered by the occurrence of an event of default. The methods and procedures for enforcement vary depending on the type of security interest and the nature of the underlying asset.

For pledges over movable assets, upon default, the creditor may proceed with the sale of the pledged asset, either judicially or, if expressly authorised in the contract, extrajudicially. The proceeds are applied to satisfy the secured obligation, with any surplus returned to the debtor. It is important to note that Brazilian law prohibits pactum commissorium, meaning the creditor cannot automatically appropriate the collateral in satisfaction of the debt.

In the case of mortgages over real estate, enforcement is typically carried out through judicial proceedings, starting with the creditor filing an enforcement action, after which the court orders the appraisal and public auction of the property. Recent legislative reforms have introduced mechanisms to streamline extrajudicial enforcement of mortgages, allowing for public auctions to be conducted outside the court system under certain conditions, thereby reducing the time and cost associated with judicial enforcement.

Fiduciary transfer offers a more creditor-friendly enforcement regime, as the lender may repossess the asset and sell it extrajudicially, provided that the contract allows and the debtor is duly notified.

For the security over shares, the lender may seek judicial enforcement to compel the transfer of shares or, if contractually permitted, conduct a private sale, if it respects corporate governance rules, shareholders’ agreements and any regulatory approvals required, especially in regulated sectors.

The choice of a foreign law and submission to a foreign jurisdiction are, as a rule, recognised by the Brazilian legal system, particularly in the context of cross-border project finance transactions. However, there are important limitations and nuances to this general rule. Brazilian law imposes mandatory application of Brazilian law to certain matters such as security interests over assets located in Brazil. Similarly, concession agreements and other contracts involving the exercise of public functions or the use of public assets are mandatorily subject to Brazilian law and jurisdiction. Furthermore, Brazilian courts retain exclusive jurisdiction over disputes involving real estate located in Brazil, succession matters concerning assets situated in the country, and certain other matters of public order.

When a contract governed by foreign law is brought before a Brazilian court, the court will generally respect the parties’ choice of law, provided that the application of foreign law does not contravene Brazilian public policy, national sovereignty or good morals. In such cases, the party invoking foreign law bears the burden of proving its content and applicability. With respect to jurisdiction, Brazilian courts will generally uphold a contractual submission to a foreign forum, whether judicial or arbitral, except in cases where Brazilian law confers exclusive jurisdiction to its courts. The Brazilian Code of Civil Procedure recognises the validity of forum selection clauses, and recent amendments have further clarified that the chosen forum must have a reasonable connection to the parties or the subject matter of the contract.

A judgment rendered by a foreign court or an arbitral award issued outside Brazil may be recognised and enforced in Brazil, but this is subject to specific procedural requirements. Under Brazilian law, foreign judgments and arbitral awards do not have automatic effect; they must be recognised through a process called homologation before the Superior Court of Justice (STJ).

To be recognised, the foreign judgment must be final and unappealable in its original jurisdiction, it must be issued by a competent court, and the defendant must have been duly served and given the right to a fair defence. The judgment must not violate Brazilian public policy, national sovereignty or good morals, nor conflict with a prior Brazilian judgment on the same matter. It must also be authenticated by the competent Brazilian consulate and accompanied by a sworn translation into Portuguese, unless an international treaty provides otherwise.

The STJ’s homologation process does not review the merits of the case, but only checks compliance with procedural and substantive requirements under Brazilian law and relevant treaties. Once homologated, the foreign judgment or arbitral award has the same effect as a domestic judgment and can be enforced in Brazil. The recognition and enforcement of foreign arbitral awards follow the New York Convention and the Brazilian Arbitration Act, also requiring homologation by the STJ.

The remittance of funds abroad, whether for repayment of principal, interest or enforcement proceeds, is subject to foreign exchange regulations administered by the BACEN. Loan agreements with foreign lenders must be registered in the BACEN’s electronic system (SCE-Crédito), and all cross-border payments must be supported by proper documentation and classified according to their legal nature. While the regulatory framework is generally permissive and designed to facilitate the repatriation of capital and payment of debt service, compliance with these requirements is essential to avoid delays or restrictions on remittances.

Also, the enforcement of security interests by foreign lenders may be affected by the commencement of insolvency or judicial reorganisation proceedings involving the Brazilian borrower or security provider. Under the Brazilian Bankruptcy Law, the initiation of judicial reorganisation triggers an automatic stay period during which most enforcement actions are suspended.

Finally, certain sectors of the Brazilian economy – such as energy, oil and gas, infrastructure and public concessions – are subject to specific regulatory regimes that may impose additional requirements or restrictions on the enforcement of security interests or the transfer of control in project companies.

Brazilian companies are permitted to enter into loan agreements with foreign lenders, whether these are financial institutions, funds or other entities, and the terms and conditions of such loans – including interest rates, fees, covenants and security – are largely subject to contractual freedom, provided that they do not contravene mandatory provisions of Brazilian law or public policy.

There are, however, certain sector-specific restrictions and regulatory approvals that may apply in limited circumstances.

It is also important to note that, although foreign lenders are not required to have a physical presence or licence in Brazil to extend credit, they must comply with Brazilian anti-money laundering regulations and provide sufficient information to enable the BACEN and tax authorities to monitor cross-border financial flows.

Brazilian law recognises the principle of equal treatment for domestic and foreign creditors, and there are no general prohibitions against providing collateral or guarantees in favour of non-resident entities.

There are, however, certain practical and regulatory considerations that must be observed. The remittance of proceeds from the enforcement of security interests to a foreign lender is subject to foreign exchange regulations administered by the BACEN.

In certain regulated sectors, such as energy, oil and gas, telecommunications and public concessions, the granting of security interests or guarantees to foreign lenders may be subject to additional requirements or approvals from the relevant regulatory authorities.

The principal legal instrument governing foreign investment is Law 4,131/1962, which, together with the New Legal Framework for the Foreign Exchange Market, establishes the basic rules for the registration, remittance and repatriation of foreign capital.

Foreign direct investment is permitted in most sectors of the Brazilian economy, and foreign investors are generally afforded the same legal rights and protections as domestic investors.

A cornerstone of the Brazilian foreign investment regime is the requirement to register all foreign investments with the BACEN through the Electronic Declaratory Registration system (RDE-IED for equity investments and SCE-Crédito for loans). This registration is declaratory in nature and is essential for the legal remittance of profits, dividends and interest, and the repatriation of capital. Once registered, foreign capital enjoys the right to repatriate profits and principal without prior approval, subject to the payment of applicable taxes and compliance with anti-money laundering and anti-corruption regulations.

Brazil’s foreign investment regime also incorporates robust protections for investors, including the right to access the courts, protection against expropriation without fair compensation, and the ability to arbitrate disputes under the Brazilian Arbitration Act or international conventions to which Brazil is a party.

The principal regulatory authority overseeing these transactions is the BACEN, which administers the registration and monitoring of foreign investments and cross-border financial operations through its electronic systems, notably the RDE-IED for equity investments and the SCE-CRÉDITO for loans. The registration of foreign investment is a fundamental prerequisite for the legal remittance of profits, dividends and interest, and the repatriation of principal, as it establishes the legitimacy of the foreign capital and the investor’s entitlement to transfer funds abroad.

Once a foreign investment or loan is duly registered, Brazilian law generally permits the free remittance of profits, dividends and interest, and the return of capital to the investor’s country of origin, without the need for prior governmental approval. However, all remittances must be carried out through authorised financial institutions and are subject to the completion of foreign exchange contracts, which must accurately reflect the nature and purpose of the transaction.

It is permissible for a project company in Brazil to maintain offshore foreign currency accounts, subject to compliance with the applicable legal and regulatory requirements established by the BACEN and other relevant authorities, particularly with the enactment of Law 14,286/2021, known as the New Legal Framework for the Foreign Exchange Market.

Brazilian companies may open and maintain bank accounts abroad for a variety of legitimate business purposes, such as facilitating the receipt of foreign investment, managing cross-border cash flows, servicing international debt or holding proceeds from export operations, allowing greater flexibility in structuring payment arrangements, mitigating foreign exchange risk and complying with the requirements of foreign financing agreements.

The maintenance of offshore accounts by Brazilian companies is subject to certain reporting and disclosure obligations such as declaring the existence, balances and movements of their foreign assets and rights to the BACEN through the annual or quarterly submission of the Brazilian Capital Abroad (CBE) statement, depending on the value of the assets held abroad.

It is important to note that, while the holding of offshore accounts is generally permitted, the use of such accounts must not be intended to circumvent Brazilian tax, exchange control or regulatory obligations.

The registration or filing of financing and project agreements with government authorities is generally not a prerequisite for the validity or enforceability of such contracts if they comply with the general requirements of Brazilian contract law. However, there are important exceptions and formalities that must be observed, particularly with respect to the creation, perfection and enforceability of security interests.

It is important to note that certain project documents may require registration or filing with regulatory authorities, especially in regulated sectors such as energy, oil and gas, telecommunications and public infrastructure. For instance, concession agreements, power purchase agreements and other contracts involving the use of public assets or the provision of public services may need to be filed with the relevant granting authority or regulatory agency as a condition for their effectiveness or to comply with sector-specific regulations. In the context of PPPs and concessions, the project company may be required to submit copies of financing agreements, direct agreements and security packages to the granting authority for review and approval, particularly if the agreements contain provisions that could affect the continuity of public services or the rights of the public sector counterparty.

Both domestic and foreign individuals or legal entities may acquire and hold real estate in Brazil, subject to certain restrictions and formalities. However, the exploitation of natural resources – such as minerals, oil and gas, water and certain types of flora and fauna – is a matter of public interest and requires concessions, authorisations or permits from governmental authorities. All mineral resources and hydrocarbon reserves are owned by the federal government, and their commercial development requires rights granted through concession contracts, authorisations or licences, typically awarded via public bidding and overseen by regulatory agencies. Foreign entities may own and operate project companies in Brazil, but face restrictions on acquiring rural and border land under Law 5,709/1971, which imposes limits and requires prior governmental approval in certain cases. Additionally, businesses involving land or natural resources must comply with environmental, zoning and land use regulations at all government levels, and projects with significant environmental impact must obtain appropriate licences from the competent authority.

The traditional Anglo-Saxon trust, in which a trustee holds legal title to assets for the benefit of beneficiaries, does not exist in its pure form under Brazilian law. However, Brazilian legal practice has developed functional equivalents that serve similar purposes, particularly in the context of secured lending and syndicated financings.

The most prominent mechanism is the use of a collateral agent, a role that has been expressly recognised and regulated by recent legislative reforms, notably the Legal Framework for Collateral. Under this regime, a collateral agent may be appointed to act in its own name and on behalf of all secured creditors, holding, managing and enforcing security interests for the benefit of a syndicate or group of lenders.

While the trust concept as understood in common law is not directly available, Brazilian law does allow for the creation of investment funds and securitisation vehicles that can hold assets on behalf of investors or creditors, subject to regulation by the Brazilian Securities and Exchange Commission (CVM). These structures are commonly used in capital markets transactions and can be adapted to serve as vehicles for holding and managing collateral in project finance deals.

The date and time of registration are decisive in establishing the priority of the secured creditor’s rights, and any subsequent security interests over the same asset will be subordinated to those previously registered, unless otherwise contractually agreed among the parties.

Brazilian law expressly recognises the possibility of creating multiple layers of security over the same asset, with each layer corresponding to a different degree of priority. In the case of fiduciary assignments or fiduciary sales, the law generally prohibits the creation of multiple fiduciary interests over the same asset, granting exclusive priority to the first registered fiduciary creditor. In syndicated or multi-source financings, it is common practice to appoint a collateral agent to hold the security on behalf of all lenders on a pari passu basis.

Subordination of security interests is also recognised and can be achieved through contractual arrangements, such as intercreditor agreements or subordination deeds, which set out the relative ranking of creditors’ claims and the order of payment in the event of enforcement or insolvency.

The Brazilian Bankruptcy Law establishes a statutory order of payment in bankruptcy and judicial reorganisation proceedings. Contractual subordination is generally upheld, and subordinated claims will be paid only after the satisfaction of senior and unsecured claims, in accordance with the terms of the subordination agreement and the statutory hierarchy. However, the effectiveness of subordination may be subject to judicial scrutiny, particularly if there are allegations of fraud, abuse or violation of creditors’ rights.

Local law in Brazil generally requires that the project company, particularly when it is the concessionaire or the entity holding rights to operate or exploit public assets or services, be organised under Brazilian law. This requirement ensures that the project company is subject to Brazilian jurisdiction, regulatory oversight and the application of domestic legal standards.

The typical legal forms for project companies in Brazil are the corporation and the limited liability company. The choice between these forms is influenced by the nature, size and complexity of the project, as well as by regulatory requirements and market practice. In large-scale project finance transactions, particularly those involving public concessions or the issuance of securities, the corporation form is generally preferred due to its more sophisticated governance structure, the ability to issue different classes of shares and debentures, and the greater flexibility it offers for attracting institutional investors and complying with capital markets regulations. The corporation form is also often mandated by the bidding rules or concession agreements in regulated sectors such as energy, transportation and sanitation, as it facilitates transparency, accountability and the professionalisation of management.

The limited liability company form, on the other hand, is commonly used for smaller or less complex projects, or in the early stages of project development, due to its simpler governance requirements and lower administrative costs. Regardless of the chosen legal form, the project company is typically established as a special purpose vehicle, essential for the ring-fencing of project risks and liabilities, the segregation of cash flows, and the facilitation of security packages and step-in rights for lenders.

Company reorganisation procedures in Brazil are governed primarily by the Brazilian Bankruptcy Law, which establishes a comprehensive legal framework for judicial reorganisation, out-of-court reorganisation and bankruptcy liquidation. Judicial reorganisation is the principal mechanism for companies facing financial distress to restructure their debts and operations while maintaining business continuity and is available to entities that have conducted business for over two years and meet certain eligibility criteria. The process begins with the debtor filing a petition before a competent court, including financial statements, a creditor list and a preliminary plan. Upon acceptance, the court grants a 180-day automatic stay, suspending most enforcement actions and lawsuits to allow negotiation and preparation of a reorganisation plan. The plan must address debt restructuring, operational adjustments and asset sales, and is subject to approval by a general meeting of creditors divided into classes. If the required majorities are not met, the court may impose a “cram-down” if statutory thresholds are satisfied. Creditors may present an alternative plan if the debtor’s plan is rejected or not submitted within the stay period. The law also allows debtor-in-possession financing with super-priority status, protected from clawback, even if reorganisation is converted into bankruptcy, encouraging new lending and financial recovery.

Out-of-court reorganisation is a flexible procedure enabling the debtor to negotiate directly with creditors representing at least 50% of affected claims. Once signed and homologated by the court, the plan binds all creditors in the relevant class, including dissenters, and is especially useful for companies with a concentrated creditor base.

Upon the acceptance of a judicial reorganisation petition by the court, an automatic stay period of 180 days is imposed, during which most enforcement actions and lawsuits against the debtor are suspended. This stay also temporarily restricts the ability of secured and unsecured creditors to initiate or continue enforcement proceedings, including the foreclosure of collateral or the acceleration of loans. The stay period may be extended for an additional 180 days under certain circumstances, but it cannot be renewed beyond this limit.

For secured creditors, the impact of insolvency proceedings depends on the nature of the security interest. Creditors holding traditional in rem guarantees, such as mortgages or pledges, are subject to the stay period and must participate in the collective reorganisation process. Their claims are classified as secured up to the value of the collateral, and any excess is treated as unsecured. However, creditors holding fiduciary security interests enjoy a privileged position exempt from the stay period and may repossess and sell the collateral outside the reorganisation process, unless the asset is deemed essential for the debtor’s ongoing operations.

The commencement of insolvency proceedings also affects the enforceability of guarantees, and their enforcement may be stayed or subordinated to the approval of the reorganisation plan, especially if the guarantor is also subject to insolvency proceedings.

In bankruptcy liquidation, the debtor’s assets are seized and liquidated under court supervision, and the proceeds are distributed to creditors in accordance with the statutory hierarchy. Secured creditors are paid from the proceeds of their collateral, subject to the satisfaction of super-priority claims such as labour and administrative expenses. Fiduciary creditors may recover their assets directly, as these are not considered part of the bankruptcy estate. Unsecured and subordinated creditors are paid from any remaining assets, but recoveries are typically limited in liquidation scenarios.

At the top of the payment hierarchy are extraconcursal claims – administrative expenses essential for managing the insolvency estate, such as court costs and judicial administrator fees – which are paid before all other creditors. Next are labour-related claims, paid up to 150 times the minimum wage per creditor.

Secured creditors, whose claims are backed by in rem guarantees (eg, mortgages, pledges, fiduciary assignments), are next in line and are paid from the proceeds of the sale of the encumbered asset, up to the collateral’s value. Any shortfall is treated as an unsecured claim. Creditors with fiduciary security interests have a particularly strong position, as the secured assets are excluded from the bankruptcy estate and may be repossessed and sold outside the collective process.

Tax claims follow secured claims in the hierarchy.

Unsecured claims are satisfied only after higher-ranking claims, while contractual penalties, criminal or administrative fines and other subordinated claims are paid last, reflecting their lower priority.

One of the most significant risks is the potential suspension or delay in the enforcement of security interests due to the automatic stay period imposed by judicial reorganisation proceedings. During this stay, which can last up to 180 days and may be extended once, creditors are generally prevented from initiating or continuing enforcement actions, including foreclosure on collateral or acceleration of debt, which can disrupt the expected cash flows and recovery timelines for lenders. This risk is particularly acute for traditional secured creditors, such as those holding mortgages or pledges, whose rights to enforce against the collateral are stayed and who must participate in the collective restructuring process, with their recoveries subject to the approval of a reorganisation plan by the majority of creditors.

Another critical risk area concerns the classification and treatment of claims in insolvency. If a lender’s security interest is not properly perfected and registered in accordance with Brazilian law, the claim may be reclassified as unsecured, resulting in a lower priority in the statutory order of payment and a significant reduction in potential recoveries. Even where security interests are properly constituted, the value of the collateral may be insufficient to cover the outstanding debt, exposing lenders to shortfalls that are treated as unsecured claims. The risk of collateral devaluation is heightened in distressed scenarios, where asset values may decline rapidly and the costs of preservation, realisation and judicial administration can further erode recoveries.

The risk of avoidance actions is another area of concern for lenders. Brazilian insolvency law provides for the possibility of clawback of certain transactions entered into by the debtor within a specified period prior to the commencement of insolvency proceedings, including the granting of security interests, payments, or transfers of assets that are deemed to be detrimental to the collective interests of creditors.

Certain entities are excluded from the general bankruptcy and judicial reorganisation regime under the Brazilian Bankruptcy Law due to their systemic importance, regulatory framework or public interest role. Notably, financial institutions are subject to a separate regime of intervention and extrajudicial liquidation governed by Law 6,024/1974 and regulated by the BACEN. Insurance companies, capitalisation companies and private pension funds are also excluded and instead follow sector-specific insolvency rules administered by agencies such as SUSEP and PREVIC. Healthcare plan operators are governed by a special regime under Law 9,656/1998, ensuring continuity of essential health services.

State-owned and mixed-capital companies providing public functions or essential services may also be excluded, depending on their legal status and specific legislation.

The recently enacted Brazilian Insurance Law has further reinforced the requirement that insurance contracts covering risks located in Brazil must be governed by Brazilian law and issued by insurers authorised to operate in the country, except in limited circumstances where local coverage is unavailable or where international reinsurance is involved.

In such cases, the insured must provide evidence of the unavailability of local coverage, typically by obtaining formal refusals from a minimum number of local insurers, and must report the foreign insurance contract to SUSEP for record-keeping and regulatory oversight.

The regulatory framework also imposes specific controls on the structure and content of insurance policies, including mandatory clauses, minimum coverage limits and the requirement to name lenders or other secured parties as additional insureds or loss payees.

Insurance premiums in Brazil are subject to the Tax on Financial Operations (IOF), including those commonly used in project finance. In addition, insurers may charge administrative fees for policy issuance, endorsements and claims handling.

The regulatory environment also addresses the use of reinsurance and retrocession, which are essential for the management of large or specialised risks in project finance. Brazilian law permits both local and foreign reinsurers to participate in the market, but foreign reinsurers must be accredited by SUSEP as either admitted or occasional reinsurers. Local reinsurers are granted a right of first refusal for at least 40% of the reinsured risk in each treaty or facultative agreement, a measure intended to strengthen the domestic reinsurance industry and retain risk within the country. The placement of reinsurance with foreign entities is subject to additional reporting and compliance requirements, and the terms of reinsurance contracts must be consistent with the underlying insurance policies.

Finally, the regulatory framework imposes strict requirements on the payment of insurance proceeds, particularly when foreign creditors are involved. Payments to foreign beneficiaries must comply with BACEN regulations on foreign exchange transactions.

The Brazilian regulatory framework recognises the legitimacy of naming foreign entities as beneficiaries, co-insureds or loss payees under local insurance policies, provided that the underlying risk is located in Brazil and the policy is issued by an insurer authorised to operate in the country.

The process of designating a foreign creditor as a beneficiary or loss payee typically requires the inclusion of specific endorsements in the insurance policy. These endorsements ensure that the rights of the foreign creditor are clearly established and that the payment of insurance proceeds is not subject to the discretion of the insured or other parties. It is also common for loan agreements and security documents to require that the lender be named as an additional insured or loss payee, and to include provisions for the assignment of insurance proceeds to a secured account or directly to the lender in the event of a claim.

The remittance of insurance proceeds to foreign creditors is subject to the regulations of the BACEN, which oversees all cross-border financial flows. Payments to foreign beneficiaries must be supported by appropriate documentation, including evidence of the underlying insurance contract, the occurrence of the insured event and the legitimacy of the claim.

The principal amount of a loan repaid to a lender, whether domestic or foreign, is not subject to withholding income tax in Brazil. However, interest payments and other income deemed similar to interest, such as certain fees or commissions, are generally subject to withholding income tax when paid to non-resident lenders. The standard withholding tax rate on interest paid to foreign lenders is 15%, but this rate increases to 25% if the beneficiary is domiciled in a jurisdiction considered a tax haven or privileged tax regime, as defined by Brazilian tax regulations. The list of such jurisdictions is periodically updated by the Brazilian Federal Revenue Service and includes countries or territories that either do not tax income or tax it at a rate lower than 20%, or that restrict the disclosure of beneficial ownership.

Brazil has entered into double taxation treaties with several countries, and these treaties may provide for reduced withholding tax rates or exemptions.

A notable exception to the general withholding tax regime applies to certain incentivised debt instruments, such as infrastructure debentures issued under Law 12,431/2011 and Law 14,801/2024. Interest paid to foreign investors and Brazilian individuals on these debentures is exempt from withholding income tax, provided that the debentures meet specific requirements regarding maturity, use of proceeds and project eligibility.

In addition to income tax, the remittance of interest and other payments abroad is subject to the IOF, a federal tax levied on foreign exchange transactions. The conversion of foreign currency into reais and vice versa is subject to the IOF at a 0.38% rate. The IOF rate for exchange transactions in connection with loans obtained by Brazilian companies, for both inflow and outflow of proceeds to and from Brazil, is currently set at 0% for loans with an average maturity exceeding 180 days, but it increases to 6% for loans with a shorter average maturity. The IOF is calculated on the amount of the foreign exchange contract and is payable at the time of the currency conversion.

Beyond the withholding income tax and the IOF, stamp duties or registration fees, particularly in relation to the perfection and registration of security interests, may be applicable. While Brazil does not impose a national stamp duty on loan agreements or security documents, the registration of collateral is subject to state or municipal fees.

Another important aspect is the potential impact of indirect taxes, such as the Social Integration Programme (PIS) and the Contribution for the Financing of Social Security (COFINS), which are federal contributions levied on gross revenues. While financial revenues, including interest income, are generally exempt from PIS and COFINS for financial institutions, other entities may be subject to these contributions depending on their legal status and the nature of their activities.

In the case of capital markets instruments such as debentures, there may be additional taxes or charges related to the issuance, distribution and trading of securities.

Brazilian law has historically imposed restrictions on the amount of interest that can be charged in financial transactions through the Usury Law, which set a general cap of 12% per annum on interest rates for civil and commercial obligations. However, the practical application of the Usury Law has been significantly limited over time. The prevailing interpretation, reinforced by decisions of the STJ and the BACEN, is that the Usury Law does not apply to loans and credit operations conducted by financial institutions duly authorised by the BACEN, nor to capital markets instruments. Instead, the interest rates charged by these entities are subject to market conditions and the regulatory oversight of the BACEN and the CVM.

It is important to note, however, that the general principles of good faith, transparency and the prohibition of abusive practices under the Brazilian Civil Code and the Consumer Protection Code (where applicable) continue to apply.

Project agreements in Brazil are typically governed by Brazilian law, reflecting both regulatory requirements and market practice, especially in sectors involving public concessions, infrastructure, energy and natural resources. This ensures that the rights and obligations of the parties are enforceable before Brazilian courts and that the agreements are aligned with the public interest, regulatory oversight, and sector-specific requirements established by federal, state or municipal authorities.

While Brazilian law is the default choice for project agreements, there may be limited circumstances in which certain ancillary contracts – such as those involving the supply of imported equipment, international services or cross-border offtake arrangements – are governed by foreign law.

The prevailing practice is that agreements relating to the creation, perfection and enforcement of security interests over assets located in Brazil, as well as those involving the operation of the project company and the performance of obligations within the country, must be governed by Brazilian law, rooted in the principle of territoriality. As a result, security documents over real estate, movable assets, receivables and shares of Brazilian companies must be drafted in accordance with Brazilian law and registered with the appropriate local registries to ensure their validity and enforceability.

However, it is common for certain financing agreements, particularly those involving foreign lenders, to be governed by foreign law, most frequently New York or English law. This is especially the case for loan agreements, facility agreements and intercreditor arrangements where the parties seek to benefit from the predictability, neutrality and well-established jurisprudence of these legal systems.

In the context of project finance in Brazil, a wide array of matters is mandatorily governed by domestic law, reflecting both the territorial scope of Brazilian legislation and the public policy considerations that underpin the country’s legal and regulatory framework. The most critical areas subject to Brazilian law are those involving the creation, perfection and enforcement of security interests over assets located in Brazil.

Additionally, matters related to the incorporation, governance and operation of the project company are subject to Brazilian law.

In the context of public concessions, PPPs and the provision of public services, the relevant concession or PPP agreements must also be governed by Brazilian law, as they involve the exercise of public functions, the use of public assets, and the fulfilment of regulatory obligations imposed by federal, state or municipal authorities.

All matters related to the assessment, collection and payment of federal, state and municipal taxes and registration fees are subject to the domestic legal framework.

Labour and employment matters, environmental regulation, anti-corruption compliance and social responsibility obligations are also governed by Brazilian law.