Judicial credit loses ground in FIDCs after new CMN rule.
The Brazilian financial market is experiencing a turning point in the securitization segment, in which... judicial credit And court-ordered payments have lost the prominent position they once held in the construction of aggressive portfolios.
Advertisements
The turning point came with CMN Resolution No. 5,122. By imposing direct limits on the allocation of these assets with uncertain liquidity, the National Monetary Council dismantled an operational mechanism that had been boosting the returns of several Investment Funds in Credit Rights.
In practice, the rule has placed institutional managers and allocators in an immediate dilemma: either they redesign the structure of their portfolios to meet the new eligibility criteria, or they accept the definitive removal of this type of asset from the menu of traditional funds.
Summary
- Why has judicial credit lost ground in securitized funds?
- What are the new rules imposed by CMN Resolution No. 5,122?
- How does the limitation on court-ordered payments affect the profitability of FIDCs (Investment Funds in Credit Rights)?
- What alternatives arise for structuring judicial credit?
- Comparative table: Regulatory changes in judicial assets
- What are the impacts for creditors and the receivables market?
- Final Considerations
- Frequently Asked Questions (FAQ)
Why has judicial credit lost ground in securitized funds?
For years, the pursuit of alpha at any cost has transformed litigation into the secret engine of profitability for securitized vehicles.
Packaging legal theses and court-ordered payments seemed like the perfect solution to deliver double-digit returns above the CDI (Brazilian interbank deposit rate) during times of low interest rates.
The problem is that this arrangement had a built-in time bomb: the mismatch between the fund's promised liquidity and the unpredictable pace of the Brazilian judiciary.
When the Central Bank realized the magnitude of the systemic risk accumulated in these structures, intervention became a matter of time.
To stop the unrealistic pricing of these securities and protect retail investors, the monetary authority tightened its control.
The retention of judicial credit It began to demand such a heavy level of governance and custody that it made the operation unfeasible for most independent asset managers.
The market reacted with a rush to readjust portfolios, cutting off new issuances focused on litigation at the root. Nobody wanted to risk having a vehicle blocked overnight due to regulatory non-compliance.
This forced restructuring drained the sector's liquidity and exposed a long-standing weakness: funds overflowing with legal arguments had to sell positions hastily or call shareholder meetings to change the regulations without proper consideration.
With the dust settling, it's clear that litigation securitization hasn't died, but it has lost its off-the-shelf product image.
The asset was pushed back into its original niche: closed, tailor-made structures restricted to investors willing to face genuine illiquidity.
What are the new rules imposed by CMN Resolution No. 5,122?
Resolution CMN No. 5,122 did not arise by chance; it came to close the loopholes that allowed the contamination of standardized credit portfolios by assets with very difficult-to-measure risk.
The bar has been raised considerably in terms of collateral auditing.
Administrators and custodians — who previously adopted a nearly passive stance — have been drawn into the center of civil and administrative liability.
Today, no credit assignment goes through without independent legal reports and continuous auditing of the probability of success.
Strict limits were also established for concentration by asset class and by issuer. The idea is to prevent a single state court's ruling from jeopardizing the financial health of an entire fund.
To keep up with the evolution of the sector's operational guidelines, it is advisable to consult the regulatory body directly. Central Bank of Brazill, which details the requirements imposed on custodial institutions.
Maintaining a vehicle exposed to litigation without a robust compliance structure has become prohibitive. The cost of regulatory compliance has devoured the operating margins that previously justified setting up these intermediary structures.
How does the limitation on court-ordered payments affect the profitability of FIDCs (Investment Funds in Credit Rights)?
The removal of judicial securities from open portfolios came at an immediate and painful price: a compression of the rates of return offered to the market.
Swapping contentious securities, which paid hefty rates for the risk of late payment, for duplicate commercial receivables or supply contracts has depressed the average return on investment. The historical profitability of these vehicles simply cannot be sustained in the new scenario.
In a FIDC exposed to judicial credit, Previously, a single successful settlement in court had the power to boost the monthly net worth quota. With the percentage limitation required by the CMN (National Monetary Council), this positive asymmetry disappeared.
The bill became even heavier because governance costs skyrocketed. Legal audits, independent opinions, and procedural monitoring systems are expensive and are now being deducted from a smaller return base.
The result is a drastic change in the investor profile. Individual investors and allocators seeking quick returns are out, and conservative institutional investors are in, attracted by the lower volatility of the readjusted units.
Meanwhile, the most aggressive capital has migrated to exclusive funds and vehicles of Special Situations, where the pursuit of high prizes remains permitted — as long as it stays away from the retail spotlight.
++ The growth of digital credit and what this means for consumers and businesses.
What alternatives arise for structuring judicial credit?
The door has closed on traditional FIDCs (Investment Funds in Receivables), but the Brazilian capital market always finds ways to circumvent regulatory bottlenecks without breaking the law.
Another path that gained traction was the issuance of securitized debentures by privately held companies.
Because they are not directly under the umbrella of open-ended fund regulation, these debentures offer the flexibility needed to finance long-term corporate disputes.
++ Private business credit is gaining ground outside of banks.
Comparative table: Regulatory changes in judicial assets
| Investment Structure | Applicable Regulations | Limit on Judicial Assets | Level of Compliance Requirement | Impact on Fundraising |
| Standardized FIDC | CMN Resolution No. 5,122 / CVM 175 | Restricted/Limited | Extremely High | Sharp reduction in new investments. |
| Non-Standard (NP) FIDC | CVM Resolution No. 175 | Allowed for qualified individuals. | High | Stabilization focused on qualified individuals. |
| Securitization Companies | Law No. 14.430/2022 | Flexible via debentures | Average | Significant growth in emissions |
| Litigation Finance Vehicles | Civil Code / Closed Companies | No specific limit. | Medium/Customized | Private equity expansion |
What is the long-term trend for the trading of judicial assets?
The illusion that accounting disputes could be settled as easily as a commercial invoice has been shattered by the regulatory framework.
The future scenario belongs to managers dedicated to the distressed asset niche (distressed assets).
In parallel, predictive audit technology and statistical analysis of judgments are becoming indispensable operational prerequisites.
The litigation buyer no longer seeks shortcuts; they operate with advanced jurimetric algorithms.
This regulatory maturation filters the ecosystem, eliminating speculative agents and consolidating operational platforms with real pricing capabilities.
The securitization of legal disputes gains in legal stability what it loses in fragmented volume.
++ Is Open Finance making loan approval easier? Understand the impact.
What are the impacts for creditors and the receivables market?
For those at the bottom of the chain — the creditor who holds a court-ordered payment or a lawsuit against the State — the change in the National Monetary Council (CMN) meant an immediate headache: longer deadlines for closing deals and significantly larger discounts.
With fewer regulated buyers competing for the judicial credit, The bargaining power has shifted entirely to the few specialized funds that remain with cash to invest.
Processes in their early stages or without a final and consolidated judgment have lost market share almost entirely. Investment committees now require that the security be "ready for payment," eliminating the purchase of purely legal risk.
For law firms that relied on advance payments of contingency fees to finance their operations, the current scenario demands accelerated professionalization.
Generic legal opinions have given way to comprehensive loss probability audits.
Monitoring of current regulations and market guidelines can be done directly on the platform of Securities and Exchange Commission (CVM), responsible for overseeing the conduct of portfolio managers.
Ultimately, the market didn't shrink due to a lack of demand, but because of a reality check. The era of naively financing legal ventures is over; the sector now operates under the cold metric of managed risk.
Final Considerations
The framework established by the National Monetary Council brought an end to an era of ambiguities in Brazilian securitization.
By imposing clear barriers to litigation in shelf credit vehicles, the regulator not only protected the financial system from liquidity stresses, but also forced the maturation of specialized structures.
The dust that settles reveals a market divided into two speeds: on one side, traditional FIDCs (Investment Funds in Credit Rights), more predictable, standardized, and with contained profitability; on the other, private structures and special situation funds operating with surgical precision in pricing legal risk.
Credit originating from the courts will continue to be traded and profitable, but only for those with the scale, resources, and technical capacity to manage the uncertainty of the courts.
Frequently Asked Questions (FAQ)
1. What motivated the new CMN rule regarding credit originating from legal proceedings?
The decision addressed the need to contain hidden risks of illiquidity in open-ended funds, as well as to stem the unrealistic pricing of securities whose payment depends exclusively on the slow-moving judicial agenda.
2. Have FIDCs stopped buying court-ordered payment certificates and rights under litigation?
Not entirely. Purchases are still permitted, but restricted to exclusive funds aimed at professional investors, with strict eligibility rules that exclude the general public.
3. What is the main alternative available to creditors for selling their bonds currently?
Privately held securitization companies, funds dedicated to Special Situations and companies specializing in litigation financing (litigation finance) took center stage in the acquisitions.
4. How does CMN Resolution No. 5,122 affect individual investors?
The average investor is protected from indirectly holding, in their private credit portfolio, extremely risky securities that are difficult to redeem during times of market stress.
5. Did the discount (reduction) on the sale of the credit right increase after the rule?
Yes. The exit of dozens of FIDCs from the buyer's pool reduced competition for portfolios, allowing the remaining vehicles to demand more aggressive discount rates to close the deal.
