Agribusiness Letters of Credit

  • The product

    The LCA is a security issued by a financial institution and is used to raise funds for agribusiness. Created by Law No. 11,076, one of the appeals of these securities is the fact that gains for individual investors are tax exempt. Another differential is that LCAs issued as of May 23, 2013 are covered by the Credit Guarantee Fund (Fundo Garantidor de Crédito - FGC) up to the limit of R$250,000 per investor.

    The primary risk of the LCA is held by the financial institution. In case of bank default, the underlying asset is pledged to the final investor by law, who can then sue for the property when the bank does not pay the asset.

    At B3, in order to register the LCA, the issuing financial institution should appropriately register the underlying asset.

    One of the differences of LCAs registered at B3 is the range of underlying assets (collateral) to which they can be pegged. Underlying assets are considered as the receivables linked to rural producers, their cooperatives and third parties, including loans and financing related to production, sale, processing or industrialization of products, farming inputs or machinery and implements used in this sector.

    As a guarantee, farmers provide the bank with real operation assets, such as soybeans, coffee, cattle or other commodities. Thus, in these operations, the Rural Product Note (CPR), rural promissory notes, Rural Mortgage Notes - CRH, Rural Mortgage Pledge Note - CRPH, Agribusiness CCB, Export Credit Note - NCE, Export Credit Bill - CCE, Agricultural Deposit Certificates - CDA/WA, Agricultural Warrant and Farm Credit Note – NCR serve as underlying assets. Trade Contracts can also be used as underlying assets.

    Another feature is the Revolving Asset, which enables short cycle asset management as part of the collateral basket. Revolving assets are those maturing on or before the maturity date of the security whose production is exhausted before the deadline of the respective LCAs. Through this feature, some asset management can be optimized by renewal according to the behavior of production and extending the tenor of the security.

    The benefit of this list of securities available to serve as LCA underlying assets contributes to the development of this market.