Risk Factors
Credit risk
It consists of the risk of default or delay by the counterparties of the Fund’s operations or the payment of interest and / or principal by the issuers of the assets that make up the Fund’s portfolio, which may, as the case may be, reduce financial gains or even losses up to the value of the contracted and unsettled operations. Changes in the issuer’s credit risk assessment may cause fluctuations in the trading price of the securities that make up the Fund’s portfolio. In addition, the risk associated with the Fund’s investments will be directly proportional to the concentration of its investments.
Liquidity Risk
It consists of the risk of reduction or lack of demand for the assets included in the Fund’s portfolio, due to specific conditions attributed to these assets or, also, to the Manager’s primary interest in carrying said assets into the Fund’s portfolio until maturity. In particular, a preponderant portion of Shareholders’ Equity should be invested in Credit Rights, particularly in Securities of Priority Projects, which must have a weighted average term, fixed by law, exceeding four years, in addition to other specific characteristics. In view of such risks, the Fund may find it difficult to liquidate positions or trade said assets at the desired price and at the desired time, in accordance with the management strategy adopted for the Fund, which will remain exposed, during the respective period of default. liquidity, the risks associated with said assets and the positions assumed in derivatives markets, if applicable, which may even oblige the Administrator and the Manager to accept discounts in their respective prices, in order to carry out their trading on the market.
Risk from the use of derivatives
It consists of the risk of price distortion between the derivative and its underlying asset, which may cause an increase in the Fund’s volatility, limit the possibilities of additional returns on operations, not produce the intended effects, as well as cause losses to the Fund and, consequently, to the Quotaholders. Even for the Fund, which will use derivatives exclusively for the protection of cash positions, there is a risk that the position may not represent a perfect or sufficient hedge to avoid losses to the Fund.
Market Risk
It consists of the risk of price fluctuations and the profitability of the Fund’s assets, which will be affected by several market factors, such as liquidity, credit, political, economic and fiscal changes. This constant price fluctuation may cause certain assets to be valued at different values than the issue and / or accounting, and may cause volatility of the Quotas and losses to the Fund and, consequently, to the Quotaholders.
Risk Related to Macroeconomic Factors and Government Policy
The Fund, as well as the assets included in its portfolio, may also be subject to other risks arising from reasons outside or outside the control of the Administrator and the Manager, such as the occurrence, in Brazil or abroad, of extraordinary facts or special situations of market or political, economic or financial events that modify the current order and have a relevant influence on the Brazilian financial and / or capital markets, including changes in interest rates, currency devaluation events and legislative changes and the regulations applicable to the Fund and its portfolio assets, especially in relation to Law 12.431 and Decree 7.603. Said changes may result in loss of liquidity of the assets that make up the Fund’s portfolio and default by the issuers of Credit Rights and Financial Assets. Such facts may result in losses to the Fund and, consequently, to the Quotaholders, as well as possible delays in payments of amortizations or redemptions. The Fund will develop its activities in the Brazilian market, being subject, therefore, to the effects of the economic policy practiced by the Federal Government. Occasionally, the Brazilian Government intervenes in the economy by making significant changes in its policies. The Brazilian Government’s measures to control inflation and implement economic and monetary policies have, in the recent past, involved changes in interest rates, currency devaluation, exchange control, an increase in public tariffs, tax creation, an increase in the rate of existing taxes, among other measures. These policies, as well as other macroeconomic conditions, have significantly impacted the economy and the national capital market. The adoption of measures that may result in currency fluctuation, indexation of the economy, price instability, increase in interest rates, increase in company costs or influence the current fiscal policy may impact business, financial conditions, operating results of the Fund and the consequent appreciation of Quotas. Negative impacts on the economy, such as recession, loss of currency purchasing power, exaggerated increase in interest rates and sharp and abrupt appreciation or devaluation of exchange rates resulting from internal policies or external factors may influence the Fund’s results.
Risk of Non-compliance with the Fund of the Requirements of Law 12.431
In accordance with the investment policy provided for in Chapter 17, the Fund will invest a preponderant portion of its resources in Securities of Priority Projects, regulated by Article 2 of Law 12.431. Such law, in its current validity, provides that, within 180 (one hundred and eighty) days counted from the first Payment Date, the Fund must allocate, at least, 67% (sixty-seven percent) of its Shareholders’ Equity in Rights Creditors. After 2 (two) years, counted from the first Payment Date, this percentage should increase to 85% (eighty-five percent) of the Shareholders’ Equity. Under the terms of paragraph 1, of article 3, of Law 12.431, the rate of income tax on income produced by funds with an investment policy equivalent to that adopted by the Fund is (i) 0% (zero percent), for (a) individuals residing in the country or (b) any persons domiciled abroad who have used the CMN Resolution 2,689 investment mechanisms and who are not residents or domiciled in a country that does not tax income or tax it at the maximum rate less than 20% (“People Resident Abroad”); and (ii) 15% (fifteen percent) for legal entities with headquarters in the country. Failure by the Fund to comply with any of the conditions set out in article 3, of Law 12.431, will constitute an Assessment Event, subject to the procedures provided for in Chapter 20 of the Regulations, and will imply (i) liquidation of the Fund, under the terms of Chapter 21 of the Regulations. ; or (ii) its transformation into another type of investment fund, as decided by the General Meeting convened exclusively for this purpose. Accordingly, the Fund will have a term of up to 180 (one hundred and eighty) days from the first Payment Date to comply with the provisions of Paragraph 1-A, of Article 3, of Law 12.431. Without prejudice to this period of 180 (one hundred and eighty) days, the taxation indicated in this item does not apply if, in the same calendar year, the Fund’s portfolio does not comply with the conditions established in article 3, of Law 12.431, for more than 3 (three) times or for more than 90 (ninety) days. Both in the case of transformation or liquidation, and in the case of non-compliance with conditions for more than 3 (three) times or for more than 90 (ninety) days, the income referred to in paragraph 1 of article 3 shall apply. o, of Law 12.431: (i) the rate of 15% (fifteen percent) for the shareholders set forth in item “a” of item I; and (ii) the rates provided for in items I to IV of the caput of article 1, of Law 131 no 11,033, of December 21, 2004, for the Shareholders set forth in item “b” of item I and item II.
Public Offering Risk
The amount to be issued of Senior Quotas – Series I and Subordinated Quotas Mezzanine – Class A will not be assessed in an investment collection procedure, as regulated by CVM Instruction 400. Therefore, during the Quota Distribution Period, if there is less demand for one of the classes, that class may have its liquidity in the secondary market adversely affected and may adversely affect the placement of the other class, or even the success of the Offer, considering that the Coordinators must observe the Minimum Subordinations for the distribution of the Quotas.
Risk Related to the Liquidity of the Fund’s Shares
The Fund will not allow the redemption of Quotas before the expiration of the respective term to be attributed to each class of Quotas. If Quotaholders wish to dispose of their investments in the Fund, it will be necessary to sell their Quotas on the secondary market. Also, considering that it is a new security, subject to regulation recently issued by the Federal Government, and that the secondary market existing in Brazil for the negotiation of investment fund shares in credit rights, including the one subject to the special regime of Law 12.431 , presents low liquidity, the Quotaholders may have difficulty in selling their Quotas, obtaining reduced prices. Absence of ownership over Credit Rights. Although the Fund’s portfolio consists predominantly of Credit Rights, ownership of the Quotas does not give Quotaholders direct access to Credit Rights, except in the event of payment of amortization or redemption with Credit Rights, as provided for in the Regulations.
Absence of Ownership over Credit Rights
Apesar de a carteira do Fundo ser constituída, predominantemente, pelos Direitos Creditórios, a propriedade das Quotas não confere aos Quotistas acesso direto aos Direitos Creditórios, salvo nas hipóteses de pagamento de amortização ou resgate com Direitos Creditórios, na forma prevista no Regulamento.
Risks Related to the Distribution of Results
The funds generated by the Fund will come from the payment of Credit Rights and income related to Financial Assets, both of which are part of its portfolio. The Fund’s ability to make payments to Shareholders by virtue of amortization and redemption is conditional on receipt by the Fund of the aforementioned funds.
Risks Relating to Junior Subordinated Shares
The Junior Subordinated Quotas are subordinated to the Senior Quotas and the Mezzanine Subordinated Quotas for the purpose of amortization, redemption and distribution of the results of the Fund’s portfolio. Thus, if the Senior Shares and the Subordinated Mezzanine Shares do not reach the Profitability Goals described in the respective Supplements to their Series or Classes, respectively, the Subordinated Junior Shares will have their value affected, being attributed to the Subordinated Junior Shares, up to the limit of its value, the first losses suffered by the Fund, exposing, therefore, the Quotaholders holding Junior Subordinated Quotas to risks greater than those exposed to Quotaholders holding Senior Quotas and Subordinated Mezzanine Quotas. In addition, under the terms of the Regulation, the Manager may maintain, at certain times, the Junior Subordinated Quotas in proportions higher than the Minimum Subordinations, that is, the Fund may maintain a level of subordination higher than the Minimum Subordinations, so that they are maintained the risk levels and risk classification attributed to the Senior Quotas and the Subordinated Mezzanine Quotas, under the terms and conditions established in the Regulations.
Risks Relating to Subordinated Quotas Mezzanine
Subordinated Mezzanine Quotas are subordinated to Senior Quotas for remuneration purposes. Thus, if the Senior Quotas do not reach the Profitability Goals described in the respective Supplements, the Subordinated Mezzanine Quotas will have their value affected, thus exposing the Quotaholders holding the Subordinated Mezzanine Quotas to risks greater than those exposed to the Quotaholders holding Senior Quotas. Under the terms of the Regulation, the Manager may also maintain the Subordinated Mezzanine Quotas in certain periods in excess of the Minimum Subordinations, that is, the Fund may maintain a level of subordination higher than the Minimum Subordinations in order to maintain the levels of risk and risk rating attributed to Senior Quotas, under the terms and conditions established in the Regulations.
Risk of Failure to Maintain Minimum Subordinations
The Minimum Subordinations may be breached at any time, during the entire Term, since the holders of Subordinated Mezzanine Quotas and Junior Subordinated Quotas are not obliged to contribute Additional Subordinated Quotas or Subordinated Mezzanine Quotas to re-establish the respective Minimum Subordinations provided for in the Regulation.
Risk of Downgrading the Quota Risk Rating
Due to default events, as well as other factors, the Senior Shares and the Subordinated Mezzanine Shares may have their risk rating lowered, which may constitute an Assessment or Settlement Event, under the terms of the Regulation, as well as cause losses or negatively impact the value of the Quotas.
Risk of Payment of Quotas on Credit Rights and / or Financial Assets
As provided for in the Regulations, liquidation of the Fund may occur in predetermined situations. If one of these situations occurs, there is provision in the Regulation that the Quotas may be redeemed by means of a donation in payment of Credit Rights and / or Financial Assets of the Fund’s portfolio to the Quotaholders. In that event, the Shareholders may find it difficult to negotiate and settle the respective assets received from the Fund.
Risks of Quotaholder Disqualification
As provided for in the Regulation, provided that it is approved by the General Meeting, there may be the payment of amortization or redemption of Quotas in the event of liquidation of the Fund, with the delivery of assets. In this case, Qutists subject to specific rules and limits may be subject to passive non-compliance in accordance with the regulations applicable to them.
Risk Relating to the Existence of a Qualified Quorum and the Right of Veto of the Subordinated Junior Shareholders
The Regulation establishes a qualified quorum for the General Meeting to deliberate on certain matters of interest to the Shareholders and, also, on the veto power, in certain matters, attributed to the holders of the Subordinated Junior Shares. The qualified quorum, as well as the veto power in certain matters attributed to the holders of the Junior Subordinated Quotas, in some circumstances, may cause limitations to the activities of the Fund and, consequently, damage to the Fund and its Quotistas.
Concentration Risk
The risk associated with the Fund’s investments will be directly proportional to the concentration of its investments, which will comply with the limits established in the Regulations. The greater the concentration of the Fund’s investments in a few Eligible Credit Rights, the greater the Fund’s vulnerability in relation to the credit risk of the respective Debtors and guarantees assigned to them. In addition, under the terms of the Regulation, the concentration risk will be more relevant in the Fund’s amortization period, as there may be concentration in some assets of the Fund’s portfolio, due to the potential non-uniform maturity of the Credit Rights.
Origination Risks
The Fund may only acquire Eligible Credit Rights that have been originated in compliance with the origination processes and / or credit granting policies that comply, at least, with the Investment Guideline specified in annex V of the Regulations. However, it is not possible to ensure that the observance of such guidelines will guarantee the quality of the Eligible Credit Rights and / or the solvency of their respective Debtors, or that the guidelines and parameters established in Annex V will be correctly interpreted and applied when the investments are made. by the Fund.
Risk of Invalidity or Ineffectiveness of the Acquisition or Subscription of Eligible Credit Rights
The subscription or acquisition of Eligible Credit Rights may be null, void or rendered ineffective, negatively impacting the Fund’s equity, in the event of the following events: (i) fraud against creditors, including the mass, if at the time of the sale the Debtor is insolvent or as a result of the said unlawful act, it was declared insolvent; (ii) execution fraud, if (a) at the time of acquisition or subscription the Debtor is subject to a tax claim capable of reducing him to insolvency; or (b) the assigned Credit Rights are subject to a lawsuit based on a right in rem; and (iii) fraud in the tax foreclosure, if the Debtor, when negotiating the Eligible Credit Rights, being subject to a tax liability to the public estate for tax credit regularly registered as an active debt, does not have assets for full payment of the tax debt. .
Risk Relating to Eligibility Criteria
Notwithstanding the Custodian’s verification of the eligibility of the Credit Rights in the Eligibility Criteria, there is a possibility that the Eligible Credit Rights, after their subscription or acquisition by the Fund, may be out of step with respect to one or more Eligibility Criteria, observing that, in this If, under the terms of the Regulation, said Credit Rights may remain in the Fund’s portfolio, with no right of recourse against the Custodian, the Administrator, the Manager and the Consultant for non-compliance with the Eligibility Criterion, except in the case of bad faith, guilt or intent of these in the initial investigation of the Eligibility Criteria, as long as it is duly proven.
Risk of Irregularity of Supporting Documents
Supporting Documents may eventually contain irregularities, such as flaws in their preparation and material errors. For this reason, eventual collection in court from the respective Debtors may be less swift than usual, and it may be necessary to adopt a monitorial or ordinary action instead of executing an extrajudicial title (which in theory could be faster). Thus, the Fund may remain for a long time without receiving the proceeds from the Credit Rights of its portfolio discussed in court, which may cause it an equity loss.
Risks arising from the Conversion or Exchange of Credit Rights into Shares or the Receipt of Shares in the Fund’s Portfolio
Considering that the Credit Rights of the Fund’s portfolio may be represented by assets convertible or exchangeable into shares, the Manager shall, if the Fund receives any such assets, and bearing in mind that the Fund may not be exposed to related risks to such markets, immediately dispose of the corresponding shares at market value, therefore the Manager is not liable, therefore, for losses, damages or losses, including profitability, that the Fund may suffer as a result of the realization of such disposals, except in the event of proven bad faith or blatant negligence by the Manager.
Risks Resulting from the Illiquidity of Assets given in Credit Rights Guarantee
The Credit Rights of the Fund’s portfolio may have collateral on real estate, vehicles, equipment, receivables and other assets and assets with reduced liquidity. Under the terms of the Regulation, in the event of default of these Credit Rights, the Manager must take steps to exclude the guarantees, which may include the sale of the assets in guarantee in the shortest possible time, limited to a maximum of 360 (three hundred and sixty) days. There is no guarantee that the Manager will be able to dispose of such assets at their market value, nor within the time period set forth herein. In the event that the Manager is unable to sell the asset given in guarantee within the said period of 360 (three hundred and sixty) days, the Shareholders, meeting at the General Meeting, will decide on the measures to be taken in relation to such asset. Neither the Manager, nor the Administrator or the Custodian will be responsible for the losses suffered by the Fund as a result of the impossibility of realizing the assets given in guarantee of the Credit Rights or for the realization at a value below its market value.
Discontinuity Risk (Non-Acquisition of Credit Rights)
The Manager is responsible for selecting the Credit Rights to be subscribed or acquired by the Fund, which must be analyzed and approved by the Investment Committee, and no Credit Rights can be acquired by the Fund, if not previously analyzed and approved by the Investment Committee. Investment. Although the Regulation provides for Valuation Events and Settlement Events related to the resignation, substitution or other relevant events related to the Manager and / or the Investment Committee, if they do not develop and / or have difficulty in carrying out their analysis and selection activities, Credit Rights, the Fund’s results may be adversely affected.
Risk of Absence of Credit Rights that Fit the Eligibility Criteria
The Fund may not have offers of sufficient Credit Rights or under acceptable conditions, at the discretion of the Manager and / or the Investment Committee, which meet the Eligibility Criteria established in the Regulation, especially in relation to the fulfillment of the requirements of Law 12.431, in priority to Securities of Priority Projects, subject to the application of a preponderant portion of Shareholders’ Equity. In this way, the Fund may face difficulties in meeting the requirements of its portfolio, as well as in using its cash resources to acquire Credit Rights. The absence of Eligible Credit Rights for acquisition by the Fund may negatively impact (i) the profitability of the Quotas, due to the impossibility of acquiring Financial Assets with the profitability provided by the Credit Rights; and (ii) compliance with the limits for the classification and concentration of Shareholders’ Equity, especially with regard to the Minimum Investment Allocation, including with an impact on the tax system of the Quotaholder.
Risk Related to Advance Payment of Credit Rights (Prepayment)
The Fund may acquire Credit Rights subject to prepayment by its Debtors, that is, which can be paid to the Fund prior to their respective maturity dates. In case of prepayment of Credit Rights, a discount may be granted in relation to the face value of the Credit Rights in question. The debtors of the aforementioned Credit Rights may proceed to advance payment, in whole or in part, of the principal and interest due until the date of payment of the Credit Right. This event may imply the receipt by the Fund of an amount lower than that previously forecast at the time of its acquisition, due to the discount of interest that would be charged during the period between the prepayment date and the original maturity date of the credit or any discount granted due to prepayment, resulting in a reduction in the Fund’s profitability.
Risk of Incorrect Pricing of Quotas or Illiquidity of Quotas Due to Purchases Made by the Intermediary Institutions of the Offer
As provided for in the respective distribution contract to be signed between the Coordinators and the Administrator, on behalf and order of the Fund, such Coordinators may acquire Quotas for themselves within the scope of the Quotas offer, if and when applicable. The acquisition of Quotas that are the object of a public offering by the institutions offering the Offer may cause distortions in the formation of the initial price of the Quotas and affect the liquidity of the Quotas in the secondary market.
Operational Risks
The failure of the Administrator, the Manager, the Custodian, the Consultant, the members of the Investment Committee, the Debtor (s) to comply with the obligations to the Fund, as established in the Regulation and in the respective service rendering contracts. services entered into with the Fund, when applicable, may eventually result in failures in the procedures for the subscription, acquisition, negotiation and collection of Eligible Credit Rights, custody and maintenance of the Evidence Documents, administration and management of the Fund’s portfolio, controllership of the Fund’s assets and bookkeeping of Quotas. Such failures may result in possible equity losses to the Fund and to the Quotaholders. In the event that the Debtors make payments relating to Credit Rights directly to a Debtor, such Debtor must immediately pass on such amounts to the Fund. If there is any credit problem with the Debtor (s), such as intervention, extrajudicial liquidation or bankruptcy, the Fund may not receive payments on time, and may incur additional costs with the recovery of such amounts, which may adversely affect its Shareholders’ Equity.
Risk of Credit Rights being reached by obligations of the Debtors or third parties providing services to the Fund
Any and all amounts related to the payment of Credit Rights held by the Fund, eventually received by each Debtor or by the Fund’s service providers, may, while not transferred to the Fund, be blocked, as, for example, in the event of “ online seizure ”of their respective current accounts, or their destination to the Fund is prevented in cases of intervention, bankruptcy, judicial recovery or extrajudicial recovery, as well as other procedures of a similar nature, of the Debtors and / or third parties providing services to the Fund. , and the release and / or recovery of any retained or blocked financial flows may depend on the initiation of administrative or judicial procedures by the Administrator, on behalf and by order of the Fund. The duration and result of any of the procedures mentioned above cannot be objectively defined.
Governance Risks
Should the Fund issue new Senior Quotas, Subordinated Mezzanine Quotas or Junior Subordinated Quotas, under the terms of the Regulation, the proportion of the current participation held by the Quotaholders may be changed and the new Quotaholders may, by means of a resolution at the General Meeting, approve changes to the Rules .
Risk of Judicial or Extrajudicial Demands
The Fund will be subject to losses and losses arising from eventual convictions in lawsuits and administrative procedures proposed by any interested third parties and arising from facts related to ownership, possession, use, destination and administration, or any other fact related to Credit Rights.
Collection Risk
Under the terms of the Regulation, the ordinary collection and collection of Credit Rights payments from the Fund’s portfolio will be carried out by the Custodian in (i) account held by the Fund; or (ii) a special account designed to receive deposits to be made by the Debtors, which will be kept in custody there, for release after the fulfillment of requirements specified and verified by the Custodian (escrow account). Even so, it is possible that, by mistake of those involved in the financial transaction for the subscription or acquisition of Credit Rights and / or Financial Assets, the resources resulting from their liquidation will be transferred by the Custodian, the respective Debtor, as well as a third party. , in the period between the payment of Credit Rights and / or Financial Assets and the transfer of the amounts arising from this payment, for its consequent compensation before the Fund. If the Custodian, the institution responsible for receiving or collecting payments related to Credit Rights and / or Financial Assets in the Fund’s portfolio, undergoes any bankruptcy, liquidation or similar event, these resources may be unavailable, which may affect the financial flow of the Fund. And, consequently, result in losses to the Fund and, consequently, to the Quotaholders.
Risk of Judicial and Extrajudicial Collection
In the event of default in the obligations for payment of Credit Rights in the Fund’s portfolio, there may be judicial and / or extrajudicial collection of the amounts due, conducted by the Manager. However, there is no guarantee that, in any of these cases, these charges will achieve the desired results, nor that the Fund will recover all the defaulted amounts, which may result in equity losses to the Fund. It is possible that such judicial charges will extend for a period of time exceedingly longer than estimated and that the Fund will take or may not be able to recover the amounts due. In such cases, the Fund may not have the resources necessary to make payments within the deadlines provided for in the Regulations. In addition, in the event that the Fund loses any lawsuit it promotes against the debtors of Default Credit Rights, by means of a final and unappealable court decision, the Fund will be subject to the payment of sums succumb to the winners of such claims.
Billing Directive Inefficiency Risk
The Fund, the Administrator, the Manager, the Consultant and the Custodian are not responsible for the payment of Credit Rights in the Fund’s portfolio. It is not possible to guarantee that the Collection Directive, including with respect to Default Credit Rights, will ensure that the amounts due to the Fund related to such Credit Rights will be paid or recovered, which may adversely affect Shareholders’ Equity and, consequently, result in insufficient resources in the Fund to make payments to Shareholders.
Fungibility Risks
All funds arising from the settlement of the Eligible Credit Rights will be received by the Custodian in (i) account held by the Fund; or (ii) a special account designed to receive deposits to be made by the Debtors, which will be kept in custody there, for release after the fulfillment of requirements specified and verified by the Custodian (escrow account). However, if there are operational failures in the processing and transfer of funds by the Debtors to said accounts, the profitability of the Quotas may be adversely affected, causing losses to the Fund and the Quotaholders. In addition, if there is any Custodian’s credit problem, such as intervention, extrajudicial liquidation, bankruptcy or other credit protection procedures, the Fund may not receive payments on time, and may incur additional costs to recover such amounts. In addition, if an intervention process, extrajudicial liquidation, bankruptcy or other similar procedure for the protection of creditors is initiated involving the Custodian, the amounts deposited in the Fund’s account may be blocked, by judicial or administrative measure, which may cause losses to the Fund. and the Quotaholders. There is no guarantee that the Custodian will comply with its obligations outlined above.
Risk of the Impact of Costs and Expenses Related to the Judicial or Extrajudicial Collection of Credit Rights
The costs and expenses related to the judicial or extrajudicial procedures for the collection of the Default Credit Rights that are part of the Shareholders’ Equity will be the sole and exclusive responsibility of the Fund. Depending on the volume of Defaulted Credit Rights and the complexity involved in the cases, the costs and expenses related to the judicial or extrajudicial collection procedures may adversely affect the profitability of the Quotas and the payment to the Quotaholders of the amounts related to the amortization and redemption of the Quotas. The Administrator, the Manager, the Consultant and the Custodian, as well as their respective Related Parties, will not be responsible for any damages or losses, of any nature, suffered by the Fund and its Shareholders as a result of the costs related to the judicial or extrajudicial collection of the Defaulted Credit Rights, and the Fund must bear all costs related to these procedures, whether judicial or extrajudicial.
Risk of Inexistence or Insufficiency of Warranties
The Credit Rights of the Fund’s portfolio may or may not have real or personal guarantees. In the event of default of Credit Rights, the respective Debtors and / or guarantors will be executed in court. However, it is possible that there is no guarantee linked to one or more Credit Rights or, depending on the guarantee provided, it is possible that the object that guarantees the debt is not found, that the price obtained in the sale of the object is insufficient to cover the debt with the Fund, that the guarantee is not to be executed in a timely manner, or that the Fund is unable to execute the guarantee. In such cases, the Fund’s net worth may be adversely affected and the Fund may not have sufficient resources to make payments within the periods provided for in the Regulations.
Risks Regarding the Possibility of Default or Advance Payments of Credit Rights
Considering the nature of the Credit Rights subject to the application of the Fund’s resources, there may be events that cause (i) the default, (ii) the extraordinary amortization, (iii) the early settlement, partial or total, of a certain Credit Right in the portfolio of the Background. Due to the occurrence of one of these events, the Fund may face situations of non-compliance with its portfolio, as well as create difficulties for the Manager to identify Credit Rights that are in accordance with Eligibility Criteria under the terms of the Regulation in a timely manner, in addition to difficulties search for applications that reach or exceed the Profitability Goals. Accordingly, the Manager may not be able to reinvest the funds received, choosing to anticipate the redemption or amortization of the Quotas as provided for in the Regulations, however, any penalty or penalty is not due by the Fund, the Administrator, the Manager, the Consultant or the Custodian. penalty, in any capacity, as a result of this fact.
Risks Relating to the Possibility of Early Settlement of the Fund
The Fund may be settled in advance in any of the situations described in the Regulations, with the consequent redemption of the Quotas and payment of the amounts corresponding to each of the Quotaholders, who may not receive the expected return or, still, be able to recover the capital invested in the Quotas, as well as they may have their original investment horizon reduced and, consequently, they may not be able to reinvest the invested resources with the same remuneration provided until then by the Fund, not being due by the Fund, the Administrator, the Manager, the Consultant or the Custodian, however , any fine or penalty, in any capacity, as a result of this fact.
Risk Related to the Fund’s Valuation Events and Early Liquidation Events
The Fund is subject to certain Valuation Events and Settlement Events provided for in the Regulations. In the event of any of the Valuation Events, the Administrator will immediately suspend (i) the procedures for acquiring Credit Rights and / or Financial Assets, (ii) making payments as income and / or amortization to the Junior Subordinated Shareholders and, concomitantly, (iii) will call, within 5 (five) Business Days, a General Meeting to resolve on the respective Evaluation Event and to assess the degree of commitment of the Fund’s activities. If the Shareholders decide that the effects of the Valuation Event constitute a Settlement Event, the procedures defined in the Rules for a Settlement Event will be adopted. In the event of any of the Settlement Events, regardless of any additional procedure, the Administrator shall (a) immediately stop the acquisition of Credit Rights and the eventual payment of income and / or amortization of Junior Subordinated Quotas in progress; (b) notify the Quotaholders; and (c) initiate the early liquidation procedures of the Fund. Such early settlement procedures can only be interrupted in the event of approval by the General Meeting, subject to the quorum provided for in the Regulations.
Risk Relating to Changes in Tax Legislation and Regulation
As a rule, credit rights investment funds are not subject to the payment of taxes on their earnings and income. Such taxation falls on the fund’s shareholders when the profits earned by the fund are transferred to it. Additionally, considering the investment policy provided for in the Regulation, the Fund is subject to the tax regime of article 3 of Law 12.431, which attributes to its Quotaholders tax benefits resulting from the maintenance of a minimum percentage of the Net Equity invested in Securities of Priority Projects. Possible changes in tax legislation eliminating benefits, creating or raising rates, as well as in the case of the creation of new taxes or even in the occurrence of changes in the interpretation or application of tax legislation by courts and government authorities, including with respect to forecasts of Law 12.431, may negatively affect (i) the results of the Fund, causing losses to it and its Quotaholders; and / or (ii) the gains eventually earned by the Shareholders, upon the amortization or redemption of the Shares. We cannot guarantee that Law 12.431 will not be changed, questioned, extinguished or replaced by more restrictive laws, which could affect or compromise the different tax treatment provided for therein.
Risks Related to the Sector in which the Fund operates
Considering that a predominant portion of the Fund’s assets will be allocated in Securities of Priority Projects, issued for the purpose of raising, by their respective Debtors, the necessary resources to implement investment projects in the area of infrastructure, or of intensive economic production in research, development and innovation, qualified as priorities in the form regulated by the Federal Executive Power through Decree 7.603, the risks of the Fund’s sector of activity will be directly related to the risks of the various sectors of activity of the borrowers who issue or assign, to the Fund, Direct Credit to compose the fund’s investment portfolio. Pursuant to article 2 of Decree 7.603, investment projects in the area of infrastructure or intensive economic production in research, development and innovation, approved by the responsible sectorial Ministry, which aim at the implementation, expansion, maintenance, recovery, are considered “priority” , adaptation or modernization, among others, of the sectors of (i) logistics and transportation; (ii) urban mobility; (iii) energy; (iv) telecommunications; (v) broadcasting; (vi) basic sanitation, and (vii) irrigation. In these sectors, investments, in general, involve a long maturation period. In addition, in these sectors, there is a risk of an unexpected change in the applicable legislation, or in the perspective of the economy, it may change the scenarios foreseen by the borrowers of Credit Rights resources, in addition to having adverse impacts on the development of their respective projects qualified as ” priority “. In this way, the return on investments made by the Fund may not occur or will occur in a manner different from that anticipated, considering that (a) the initial investment necessary for the implementation of the developed projects can be quite high, considering the nature of the sectors indicated in the Article 2 of Decree 7.603, (b) Debtors, in general, finance a significant part of the investment in projects classified as “priority” with third party capital, and (c) the term of maturity of said projects may exceed 5 years, being that, during this period, political, economic, climatic events, among others, can occur and compromise the feasibility and profitability of the project object of the investment. Finally, each sector above has its own risk factors, which can also impact the payment of Credit Rights. Therefore, it is possible that the return on investment made by the Debtors will not be verified, partially or in full, or that the Debtors will not be able to meet their obligations in a timely manner, which, in both cases, may have an adverse adverse effect on the business. Debtors and, consequently, in the results of the Fund and in the income attributed to the Quotaholders.