The Brazilian political environment has historically influenced, and continues to influence, Brazilian economic performance.
Over the last several years, there has been an increase in volatility in the Brazilian economy due to uncertainties arising from ongoing anti‑corruption investigations. Several members of the Brazilian government, as well as executives from large state-owned and private companies, have been convicted of corruption in connection with their involvement in government-sponsored infrastructure projects, oil and gas companies and construction. In addition, the presidential election held in Brazil in October 2018 resulted in the election of Mr. Jair Bolsonaro, who took office earlier this year. The president of Brazil has the power to determine policies and governmental actions related to the Brazilian economy which, in turn, may affect the financial performance of companies and financial institutions. While Mr. Bolsonaro is seen as pro-market, political uncertainty still looms over Brazil, as only time will tell how his proposed changes will affect the Brazilian economy.
It is in this volatile context that Brazilian issuers are taking advantage of reduced prices of their bonds traded in the international markets to restructure their debt profile and reduce their cost of capital by repurchasing such bonds at favorable prices.
Repurchasing debt: open market repurchases and tender offers
Two principal methods through which issuers may repurchase their debt securities are: (i) through open market repurchases or (ii) by means of a tender offer. The main differences between these two alternatives are the amount of bonds that can be repurchased, pricing, how active the issuer can be in procuring sell offers and applicable requirements under the U.S. federal securities laws.
Regardless of the alternative used to repurchase its outstanding debt securities, Brazilian issuers must always (i) verify if the relevant indenture allows them to repurchase the debt and comply with the requirements of such indenture (e.g., cancel the repurchased bonds promptly after repurchase - a common provision in indentures utilized by Brazilian issuers), (ii) comply with applicable U.S. and Brazilian procedural and regulatory requirements (e.g., the repurchase of subordinated debt typically requires prior approval of the Brazilian Central Bank), and (iii) be aware that U.S. securities antifraud provisions may apply to any such transaction (e.g., no material misstatements or omissions may be used in the context of any repurchase).
Open market repurchases
Open market repurchases are the quickest and easiest way for an issuer to repurchase small quantities of debt securities. While the term of the relevant indenture may allow for an optional redemption of a portion or all of the outstanding debt securities governed by the indenture, such redemptions typically require the payment of premiums and may therefore be more expensive for an issuer than purchasing the securities in the open market. An issuer may acquire its debt securities through open market purchases or in privately registered transactions (and while not necessary, sometimes with the assistance of a brokerage house). The main...