This memorandum aims at informing about Provisional Measure ("Medida Provisória") No 564, dated April 3, 2012, which, among other provisions, authorizes the Federal Government to participate in funds dedicated to guaranteeing export transactions or infrastructure projects as well as to create the Agência Brasileira Gestora de Fundos e Garantias S.A. – ABGF.

This Provisional Measure authorizes the Federal Government to participate, as a quotaholder and up to the amount of R$ 14.000.000.000,00 (fourteen billion reais), in funds which purpose is to guarantee:

  1. - commercial risks in export transaction with a term exceeding 2 years;
  2. - political and extraordinary risks in any export transaction; and
  3. - default risk in the export of goods and services, as further specified in its by-laws.

Furthermore, the Provisional Measure authorizes the Federal Government to participate, as a quotaholder and up to the amount of R$ 11.000.000.000,00 (eleven billion reais), in funds with the specific purpose of guaranteeing, directly or indirectly, risks of (i) credit, (ii) performance, (iii) default in contractual obligations or (iv) engineering, in the following operations:

  1. - infrastructure projects provided by the Programa de Aceleração do Crescimento –PAC or strategic programs established by the Federal Government;
  2. - financing of the shipyard industry;
  3. - credit lines for air carrier companies;
  4. - public-private partnership agreements, as defined by Brazilian law; and
  5. - other strategic infrastructure projects, as determined by the Federal Government from time to time

This second fund will be able to offer direct protection whenever the insurance market is not able to provide coverage for these risks, either totally or partially.

On the other hand, every time the insurance market is taking 20% or more of the risk in a given operation, the fund may indirectly cover such risks. In this case, the insurance and reinsurance companies shall pay a fee to the fund, as defined in its by-laws.

Finally, the Provisional Measure authorizes the Federal Government to create the Agência Brasileira Gestora de Fundos e Garantias S.A. – ABGF, a state-owned company related to the Ministry of Finance.

ABGF will be subject to the regulations applicable to insurance companies and will be regulated by the Brazilian insurance agency, the Superintendence of Private Insurance - SUSEP. SUSEP may, however, exempt ABGF from some of the insurance regulations.

ABGF will grant guarantees in relation to the following risks:

  1. - credit life in relation to public housing financing;
  2. - damages to the real estate in relation to public housing financing;
  3. - credit in relation to public housing financing;
  4. - commercial risks in export transaction with a term exceeding 2 years;
  5. - political and extraordinary risks in any export transaction;
  6. - default risk in the export of goods and services, as further specified in its by-laws;
  7. - credit in relation to public agribusiness financing;
  8. - credit in relation to micro, small and medium size company financings; and
  9. - credit in relation to public educational financing.

ABGF shall not longer be authorized to grant guarantees whenever the above risks find insurance at the same prices and conditions offered by the ABGF.

This Provisional Measure entered into effect on April 4, 2012.

As usual, we will be closely following up such matters and we shall keep our clients and partners informed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.