-34-
These were called "blocked deposits". Under the DFA's and the 1986
DFA, the payment terms of the deposits were also rescheduled.
Moreover, under the terms of these agreements, blocked deposits
relating to loans maturing in 1983, 1984, and 1985 could be re-lent
by the creditors to borrowers in Brazil. Blocked deposits for loans
maturing in 1986 (such as the deposits at issue herein) could not
be re-lent but could be used for equity investments in Brazilian
companies. This type of transaction is called a "debt-equity
conversion". In a debt-equity conversion transaction, non-Brazilian
currency-denominated blocked deposits at the Central Bank are
exchanged for cruzados at the official exchange rate, and thereafter
the cruzados are used as payment for equity interests in Brazilian
companies, subject to Central Bank guidelines and pursuant to the
DFA's and the 1986 DFA. Such a transaction can take place only after
negotiations with and agreement by the Central Bank.
Blocked deposits at the Central Bank were bought and sold on
a secondary market at a discount to their face amounts. This
secondary market originally reflected rates at which banks exchanged
debt of one country against that of another, attempting to diversify
their portfolios. Ultimately, the transactions on the secondary
market involved sales of all types of claims by banks wishing to
clear their portfolios of the specific loans. Throughout most of
1986, Brazilian debt was trading in the secondary market at 75 cents
on the dollar, declining to 63 cents by April 14, 1987 (the date of
Page: Previous 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 NextLast modified: May 25, 2011