The National Economic and Social Development Bank (BNDES) approved different economic measures in March of this year in order to mitigate the social and economic impacts of the new coronavirus (covid-19) pandemic that Brazil is weathering. Among them is the possibility of granting a six-month suspension on repayments of loans (principal and interest) taken out with the institution, in both direct and indirect types, by companies affected by the crisis, a measure known in the market as a standstill agreement.
BNDES’s direct transactions are those in which the financing is requested by the borrower directly to the bank, without brokerage from other financial institutions. In such cases, BNDES offers the possibility of suspending interest and principal for a six-month period. For this purpose, it is necessary to submit the request to BNDES by June 30, 2020. It will be reviewed by the team responsible for the borrower’s contract who will seek the suspension and forward it to BNDES’s Credit and Transactions Committee, in charge of ascertaining whether there is any impediment to the suspension. If the standstill period request is approved, the financing contract will be amended.
The main implications for borrowers that have their financing agreements amended are: (i) prohibition on the distribution of dividends and interest on equity for the year in which the suspension of payments takes place, except the minimum provided for by corporate laws and regulations; and (ii) that the BNDES does not declare any financial default of the relevant borrower during the suspension period. Other specific obligations are described in the terms of the draft of the contractual amendment available on BNDES’s website. Considering that the new form of payment of the suspended installments is not standardized, the borrower must pay special attention to the repayment provisions of financing contracts entered into before the standstill agreement is applied for.
The standstill is also provided for indirect transactions, those where there is an intermediary financial institution between BNDES and the borrower, in general due to the lack of BNDES branches in the borrower's location. Only accredited financial institutions may participate in indirect financing transactions. They are responsible for analyzing the financing, the risks of financial default, and all the business issues for granting the financing.
In this type of financing, BNDES grants to borrowers the same possibility for suspension of payments as is offered in direct transactions, as indicated above. To this end, it is necessary to forward the request to the financial agent with whom the transaction was contracted. BNDES has already reported that the negotiation of standstill agreements and detailed criteria thereof are of the responsibility of the accredited intermediary financial institutions, noting that the rules set out in SUP/ADIG Circular No. 12/2020-BNDES must be complied with.
The possibility of a standstill agreement applies to all BNDES financing instruments, including those done with funds from the Merchant Navy Fund (FMM). The exceptions are the financing programs subject to matching by the Brazilian Treasury (subsidized transactions where the interest rate of the transaction is lower than the cost of the funds granted by BNDES).
