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Central Bank pursuant to a new loan entered into by the Central
Bank and the foreign lender.
As a part of the restructuring, Brazil needed to obtain
additional foreign capital to enable its economy to function. Much
of this additional foreign capital was furnished under the credit
guaranty agreement (CGA) entered into by the Central Bank and some
of the foreign lenders. Only the 170 foreign lenders holding the
largest amounts of outstanding Brazilian loans participated in the
phase I CGA.3 In contrast, almost all of the foreign lenders
participated in the phase II CGA.4
The loans made to the Central Bank under the phase I DFA,
phase I CGA, phase II DFA, and phase II CGA were net loans5 that
had repayment terms of 7 to 9 years. In the phase I and phase II
DFA’s and CGA’s, provisions were made for funds that would
otherwise be lent to the Central Bank, as borrower, to be
alternatively lent or re-lent to other Brazilian persons and
companies. Many of the foreign lenders wanted their customers to
have some ability to borrow from the large amount of foreign
exchange and capital to be provided by the CGA’s and DFA’s. The
phase I DFA, phase II DFA, phase I CGA, and phase II CGA each
3 Petitioner did not participate in the phase I CGA.
4 No phase III CGA was entered into.
5 Certain consequences to the Brazilian borrower and
foreign lender which result from having a net loan, as opposed to
a gross loan, are more fully discussed infra.
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Last modified: May 25, 2011