IFLR 1000
The Guide to the World's Leading Financial Law Firms

There is much more specialisation in the Brazilian legal market than there is in any other market in Latin America and as such firms can be found that offer 'boutique' services geared towards one type of client or transaction. There are also numerous firms that can handle every aspect of corporate work for clients of any size, as well as firms that fall at every point in between the two designations listed....

There is much more specialisation in the Brazilian legal market than there is in any other market in Latin America and as such firms can be found that offer 'boutique' services geared towards one type of client or transaction. There are also numerous firms that can handle every aspect of corporate work for clients of any size, as well as firms that fall at every point in between the two designations listed.

Many of the financial lawyers in the country have been educated or have practised abroad, although there are several excellent legal programs in Brazil. Much of the country speaks Portuguese but the continent largely speaks Spanish and so many of the country's lawyers are trilingual (including English).

Many of Brazil's transactional firms are based in the largest city and financial centre of São Paulo, although many also have offices in Rio de Janeiro. Increasingly though there are firms that either have offices or are headquartered in other cities such as Brasilia, Porto Alegre, Curitiba, Salvador or Belo Horizonte. In some cases this is a function of the clients or the industry that a firm primarily services and in others it is a simple case of many firms' need to have offices in several important business districts.

The firms that engage in corporate work in Brazil are almost always, to one degree or another, acquainted with sophisticated international legal matters and the type of clients who require related services. This is a country in which research can be paramount for clients. There are so many firms here, both international and domestic, that there is almost certainly one that fits the type of work that is needed better than the others.

There has been a steady influx of international firms into Brazil in the last few years, and the trend shows no signs of slowing. The country's local lawyers and its legal market are certainly far from being proponents of the perceived infringement upon any part of their pool of corporate clients and corporate work, but the growing economy is too great a draw to keep international firms out.

As recently as ten years ago, there were only a handful of global firms with meaningful offices in Brazil. According to most estimates, however, the last five years have seen the addition of around two to three new international firm outposts in the country every year. With the amount of investment pouring into the region and into the country, Brazil is increasingly viewed as a jewel in the crown for many international firms, especially with regard to its largest city São Paulo.

International firms are beginning to explore Rio de Janeiro as a viable office location, as well. So far, Rio offices are usually a global firm's second office in the country after São Paulo, but that may change in the future. In the present, though, international firms continue to explore the Brazilian legal market, either establishing a presence to take advantage of the country's lucrative rate of growth or after following a large client into the country or into the region.

An issue far more pressing for international firms than their location is the Brazilian bar association's (OAB) much-publicised struggle with how to treat global firms practising in the country. Currently international firms cannot technically practise local Brazilian law or employ Brazilian lawyers, although they can and do practise their home country's law and international law in Brazil after registering with the OAB.

Furthermore, although several global firms have associations with local firms in order to circumvent some of the restrictions regarding foreign firms, the OAB has publicly entertained the idea of even eliminating any kind of formal alliance. As the IFLR1000 goes to press, the issue is still up in the air, creating some amount of tension among both local and foreign practitioners as the OAB appears increasingly determined to protect the business rights of local firms in the midst of a very attractive and lucrative Brazilian market.

MAJOR LEGISLATION CHANGES

Brazilian Competition Act
In effect as of May 2012

CONTEXT AND TRENDS "Opportunities still exist in Brazil. The capital is a little more expensive now, but there's still a positive market," remarks one attorney....

CONTEXT AND TRENDS

"Opportunities still exist in Brazil. The capital is a little more expensive now, but there's still a positive market," remarks one attorney. The statement summarises a great deal of the Brazilian economy right now, though it has special relevance to the country's capital markets and banking industries.

The country itself is locked in a back-and-forth battle between growth driven by increasing consumption, a growing middle class and global commodities prices that are still quite high and the pull-back caused by investor fears concerning rising inflation and the looming uncertainty around the EU's economic future. Brazil's economy grew only between 2.5% and 3% this year by most estimates, falling far short of the growth of recent years and also short of that experienced by similarly positioned economies like those of India and China.

However, the country is still experiencing significant inbound investment and continues to be a regional leader, especially considering the recent trials of its neighbour Argentina. The companies within this growing country still need significant financing and debt capital markets seem to have been the preferred source for many of them: "Over the last 12 months we've seen a lot of domestic financings that were structured locally using corporate bonds and commercial paper," comments a market practitioner. "It has been a very important source of financing locally – even given the high interest rates."

Nowhere was the trend more apparent than in the massive issuance of bonds by the state-run oil and energy company Petrobras earlier this year. The issuance, near $7 billion in total value, is part of the company's larger effort to finance its increasing output and make Brazil one of the largest oil-producing countries in the world by 2020. The international appetite for the bond issuance, among the largest in the country's history, was described by one attorney as "unprecedented – a blockbuster moment for the country's capital markets". Another hinted at the possible implications in the market, saying: "I think Petrobras led the charge in what has been a pretty big market for debt instruments and issuances."

Part of the reason that debt capital markets have been so popular this year is the idea that, in many attorneys' opinions, equity capital markets have taken a real hit. There was a sense that the equity side had started to recover from its post-global financial crisis doldrums in the first part of 2011. In the second half of the year and in 2012 though fears concerning the resolution of Europe's difficulties and a cooling of the economy's red-hot growth created nervousness among potential investors. "We have a lot of trade partners in Europe," explains one lawyer. "Fears there translate into fears here – the same as it is in most of the world right now. Our economy is still doing well, but not as well as it has been. That isn't necessarily too worrisome, although you can't help but think about what may happen in the future."

That tension, combined with a perception that many companies seeking equity financing obtained it in the boom years prior to the crisis led to a slower market in recent months: "The IPO market picked up a little bit early last year, but it didn't last," one lawyer observes. "There were talks about potential transactions by companies who had already issued, but we didn't end up seeing them. After our initial round of IPO's a few years ago, you get to a point where there aren't many companies left that are mature enough to go to market through an IPO – especially when the equity market is a little soft."

International pressures have created some interesting trends in the Brazilian banking system. Basel III is set to take effect in 2013 with increased capital requirements among its most prominent features and many of the country's banks simply won't be able to meet the new guidelines. As a result, the Brazilian government has come up with a means to allow new market participants to get involved in the banking system as quickly as possible while also eliminating a number of distressed assets: "The government is thinking about requiring new entrants into the market to purchase a smaller bank in distress or a smaller cap financial institution instead of incorporating a new bank over a period of two years or more," explains a partner. "It's already happened a few times, and it allows new entities to get into the banking market faster, to avoid starting from scratch and it saves the government money in the long run."

This approach is viewed as a case of foresight from the Central Bank, which is not something it has always been known for. To some extent, though, the Central Bank's hand has been forced by market conditions. "Two elements are relevant here," a lawyer explains. "First, several small and medium sized banks have concentrated due to near bankruptcy – there is a crisis of liquidity affecting banks of that size. The second is that consumer finance issues have driven Brazil's progress. The country is not a high-technology one, it's driven by people having the ability to consume greater amounts of goods."

Between high interest rates, a relatively overvalued real and a banking system in the midst of both concentration and the incursion of numerous international entities, it has been an interesting past year in Brazil. For companies seeking financing, the path has been slightly different from that of past years and probably a bit more expensive. However, the shift to debt capital markets has not been an incredibly difficult one and the banking system is still seen as being quite healthy. As one attorney puts it: "Right now it's bond issuances, but tomorrow – who knows? It's hard to predict what's going to happen in the world right now, much less here in Brazil. We continue to grow and as long as that keeps happening we'll work the rest out."

MAJOR LATERAL HIRES

Caio Campello
From: Lefosse
To: Tauil & Chequer

Marcelo Cosac
From: Felsberg e Associados
To: Tauil & Chequer

Eduardo Lima
From: Lefosse
To: Tauil & Chequer

...

CONTEXT AND TRENDS The biggest news of the year, by far, in the corporate sector was the implementation of the Brazilian Competition Act, which took effect on May 29 2012. Among its many other features, the most notable stipulation of the new legislation from an M&A perspective is one that requires that entities engaging in a merger or acquisition above a threshold value obtain prior approval from the Administrative Council for Economic Defense (CADE), Brazil's competition authority....

CONTEXT AND TRENDS

The biggest news of the year, by far, in the corporate sector was the implementation of the Brazilian Competition Act, which took effect on May 29 2012.

Among its many other features, the most notable stipulation of the new legislation from an M&A perspective is one that requires that entities engaging in a merger or acquisition above a threshold value obtain prior approval from the Administrative Council for Economic Defense (CADE), Brazil's competition authority. Companies previously had the option of getting competition approval either before or after a transaction closed, although nearly every attorney indicates that the option to get prior approval was almost never exercised.

The result of the Competition Act was that there was a flurry of activity as companies tried to close M&A deals before the May 29 deadline. This created a flood of work for financial attorneys in the latter half of 2011 and the first part of 2012 after a relatively slow start in 2011 due to Europe's uncertain future. Lawyers report surprise at the volume of transactions that actually went through: "It's been an intense period for our office and I assume it's the same at other firms," remarks one partner. "If it weren't for the new law though, some deals wouldn't have gotten done because they would have gone through the usual channels and wouldn't have caught the attention of all of the principals. It pushed the timetable up on everything."

All of that activity created changes in several different industries. Another lawyer comments, "All of the sectors of the Brazilian economy are in the process of consolidation – the aviation and banking systems definitely. You are starting to see new giants show up in the infrastructure sector and probably they will be there for quite a while."

This consolidation isn't exclusively driven by companies trying to close transactions before the competition law took effect though. The country's growing middle class has an ever-increasing appetite for consumer goods, which acted as a catalyst for M&A activity between entities like telecommunications companies and technology-based businesses. The country itself is also experiencing a stable economic and political period, while some of its neighbours are not: "The trend this year is more Brazilian companies buying companies in other countries," observes a market practitioner. "They're becoming strong international companies and they're taking advantage of some of the opportunities created by countries in the region with political unrest where the assets are cheaper."

In many cases, the rush of corporate deals was either fuelled by interest from private equity funds or had a private equity component attached to individual transactions. One attorney mentions, "A lot of people made a lot of money in a short period of time because there were so many deals. Market structures and market conditions drive M&A deals and smart equity fund managers know when to get involved."

The number of transactions and the amount of money to be made has also attracted a number of new players in the private equity market. One trend over the last year was new fund formation or attracting new business for existing funds. An attorney explained the trend saying: "We have a new wave of rich people in Brazil and they're both willing and able to invest in Brazil and abroad. In a lot of cases, private equity funds offer the easiest opportunity to do so."

International interest remains strong too. The country's sharp growth in both production and consumption in recent years has attracted a lot of attention. Financial lawyers are pleased with the growth of the market, but indicate that there are some barriers to the influx of capital: "Most big international funds are already in Brazil and the ones that aren't are looking to get into Brazil," states another lawyer. "The deterrent is the high interest rates here, but investors still see the economic growth and the growth of the middle class as an indicator of overall growth and potential profits."

Despite any fears concerning high interest rates or the country's level of inflation, business was extremely brisk for corporate lawyers over the last 12 months. Given the special set of circumstances surrounding the new legislation, most attorneys indicate that it will be difficult to predict what effect this year's boom will have on the transactional outlook of the coming years. However, the general state of the economy and the upward trend of the region have most lawyers pleased with the country's prospects: "Technology is really growing and there's a lot of room left in that market – we don't even know how much yet," one of those lawyers comments. "More people can buy more goods than ever before and we're finally starting to address some of the infrastructure needs that have been largely ignored for many, many years. Brazil is not as developed as some other economies this size, but it's getting there. It's a nice moment in Latin America and a nice moment in Brazil, so it's also mostly a nice time to do this kind of work."

MAJOR LATERAL HIRES

Bruno Werneck
From: Tauil & Chequer
To: Mattos Filho Veiga Filho Marrey Jr e Quiroga

Eduardo Soares
From: Tauil & Chequer
To: Soares Bumachar Chagas Barros Advogados

Reinaldo Ma
From: Felsberg e Associados
To: TozziniFreire

Alvaro Notaroberto Barbosa
From: Mattos Filho Veiga Filho Marrey Jr e Quiroga
To: TozziniFreire

RISING STARS

Veirano Advogados
Carlos Alexandre Lobo
Lior Pinsky

CONTEXT AND TRENDS "It's been across-the-board busy in project finance this year," reports one lawyer. "Oil and gas and energy have been particularly busy, though, because we need so much in the way of energy generation and transmission....

CONTEXT AND TRENDS

"It's been across-the-board busy in project finance this year," reports one lawyer. "Oil and gas and energy have been particularly busy, though, because we need so much in the way of energy generation and transmission. You also have ports and Petrobras is investing in oil production and oil vessels, so that creates work too and has reactivated interest in those areas and related ones."

It may seem like an oversight not to expound upon Brazil's status as host to the upcoming 2014 World Cup and the 2016 Olympics, but project finance lawyers in the country cite small and mid-size project finance as the more important source of work this year. They also indicate that infrastructure projects either ancillary to the games or completely unrelated represent a larger portion of the market than things like stadia or event-hosting facilities.

The controversial Belo Monte hydroelectric project continues to dominate the headlines, but even this massive undertaking is merely representative of a much larger need to support Brazil's growth: "The big bottleneck of Brazil these days is infrastructure in every respect," another attorney reports. "We've been less involved in projects centred on the World Cup and such and more on projects involving local infrastructure. The country has been growing a lot in past years and the fact of the matter is that we need infrastructure to catch up – we need roads for exports and for taking goods from the cities to outlying areas, we need airports for travel and we need sanitation removal measures as much as anything."

All of those projects obviously require financing of some type. Given that the real is seen as being relatively overvalued and that measures are being taken to combat rising inflation, domestic financing is seen as preferable to finding financing from abroad. This year, attorneys report that the Banco Nacional de Desenvolvimento Economico e Socialone (BNDES) is really the only major source of that financing in the country, but also that they have some concerns for the future of that financing: "The BNDES stepped in when there was a liquidity crisis because of the global banking crisis," notes a project finance lawyer. "But the BNDES is getting more selective about the projects it will take on. The one contingency in the market is that there should be more of a role for private banks in project finance, but their rates are higher than the BNDES. It's getting to the point though where people are realising that they can't depend on the government or the BNDES forever."

In addition to pure financing concerns, Brazil is currently facing issues that reflect a global trend toward heightened environmental responsibility regarding projects that are planned or are already underway. The country's people have had an influence this year, as well and it has affected the project finance market. "Environmental risk and social risk are the biggest obstacles that project finance undertakings face right now," a partner states. "There's a lot of pressure by syndicates and local politicians, groups that compete with the investors and others that create a lot of uncertainty. The whole world is worried about environmental issues, so there's even international pressure – even after a deal has been optioned."

There have been a lot of good developments though, as attorneys report that PPP's (public-private partnerships) have been both popular and effective in recent months. "Logistics – things like ports, roads, and airports – have been particularly busy and have been good spots for PPP arrangements," says one lawyer, while another adds, "I think PPP's will be a big success for the next few years, both because they've gone well here in Brazil and because they've been such a big part of the growth of the region."

Perhaps the biggest concept of the past year in project finance, however, or at least the concept with the highest expectations attached to it, is the country's development of project bonds. The structure for bond issuances related specifically to financing infrastructure or other projects has been in place since 2010. In practice though, project bonds have proven far less popular than in theory. "The obstacle to project bond issuance is that in Brazil there's no secondary market for corporate bonds, period," states one partner. "Also, pension funds here aren't used to project bonds. Thirdly, people are used to the variable interest rate here rather than the fixed rate most project bonds offer. For international project bonds, the problem is that most projects here need to be financed in reals, so it makes sense to raise capital here."

Despite these concerns and others, many project finance attorneys remain bullish on the future of project bonds. Given that the sector outperformed many other areas of the Brazilian market last year, financing is still in great demand and some lawyers feel that the project bond simply makes too much sense not to feature heavily in the country’s future: “Instead of bank lending, we may have to use bonds to raise money for projects,” offers one of those lawyers. “Bank lending may not be enough for the country’s needs and I feel like the tax and regulatory benefits attached to project bonds will prove too attractive to pass up eventually. If the money makes sense, investors will come around.”