The National Monetary Council revoked Resolution 3836, which had been regulating Law no. 12249, and enacted Resolution 4123, on August 23, to change the rules applicable to the issuance of Financial Bills by financial institutions. The National Monetary Council ("CMN") approved the new resolution to meet the major objectives of financial institutions in expanding and disseminating the use of Financial Bills ("LFs") as a long-term funding instrument.

Just to have an idea of the importance that this bill has been gradually acquiring in the bank funding scenario, until the past month of July the stock of financial bills was in excess of R$ 150 million (according to data recorded by Cetip, the depository of corporate bonds, state and municipal governmental securities and National Treasury securities).

By issuing the new resolution, the Central Bank sought to provide conditions for the evolvement of the secondary market for financial bills and to spur the expansion of more flexible repurchase and resale clauses, further to the possibility of stipulating subordination clauses.

As to this aspect, although Resolution 4123 kept a minimum term of 24 months for the maturity of the bills and prohibition to repurchase or redeem the bills prior to the term established in the issuance, the new rule allowed that in relation to LFs issued for a term in excess of 48 months and not remunerated by the DI rate, there may be provided a repurchase option by, or resale to, the issuer, and it is also possible to modify the financial charges in case the option is not exercised.

In any case, the date of first event of exercise of the option must be in line with the minimum term for maturity of the issuance. A minimum 180-day gap between the option dates must be observed. On the other hand, the repurchase by the issuer must be made under equitable criteria, as determined in the regulation issued by the Brazilian Securities and Exchange Commission - CVM.

Likewise, the new regulation allows the issuing institution to contemplate the possibility of exchanging LFs for bills of their own issuance, through exchange markets or organized OTC market, including upon the exchange of LFs without subordination clause for LFs with subordination conditions.

Moreover, Resolution 4123 met two other significant expectations of financial institutions by allowing the issuance of LFs with subordination clause and reducing the minimum unit value by half. However, such reduction in value is only applicable to cases without subordination clause. As a result, the value was set at R$150,000. For issuances with subordination clause, the minimum value remains set at R$300,000.

In case the LFs are used in the performance of linked credit transactions - that is, transactions where the institutions perform credit transactions (i.e., extension of loans and financings) linked to the performance of specific funding transactions (deposit raising) - the CMN started to expressly allow the early maturity in the event the credit transaction is settled, subject, however, to the minimum term of 12 months.

To close the list of new rules, the regulation also allowed development banks to issue LFs, which - expectedly - may help the raising of funds intended to meet the growing need for credit to finance major infrastructure projects and develop economic activities of relevance to the national interest.

In this context, article 1 of the new resolution is individually and concretely contemplating the Brazilian Development Bank BNDES by allowing it to have special issuance conditions, which include the obligation for the bank to carry out a feasibility study including an economic-financial analysis on the use of financial bills as compared to other fund-raising sources in view of the amount, term, rates, indices, composition of liabilities and other issuance conditions. BNDES must also take into consideration the potential demand for long-term bonds at the time of the intended issuance and the planned destination of the raised funds.

However, the new rules will only yield effects as of November 1, whereupon the recording system will be able to adapt to the changes.

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