TozziniFreire assists pro bono the first public offering of social impact bonds in Brazil

Din4mo, a benchmark in terms of development and management to startups and social impact companies, together with Grupo Gaia, a major specialist in securitization in the Brazilian market, pioneered the first debenture with social impact in Brazil. This groundbreaking initiative was assisted pro bono by TozziniFreire. 

Issued by Gaia Cred II, a Grupo Gaia’s company, these social bonds will support Programa Vivenda, a project that aims to offer better living conditions through the renovation of houses located in low-income areas. The funding amounted to BRL 5 million. These resources will be paramount in financing the communities where Vivenda operates. It is expected that more than 32,000 people will be benefited by the initiative within five years.

Altogether, eighteen months were spent in the search for the most adequate model. “We had two biggest challenges regarding this operation. The first one was to financially structure credits which still didn’t exist, therefore we couldn’t use a traditional tool like CRI; hence, debenture was our option. The second challenge was the financial equation. We wanted the families to pay fairer and more viable interests, but which should be at the same time appealing to investors”, says João Pacífico, Grupo Gaia’s founder and strategic coordinator of the operation.

Following the concept of blended finance, the alternative was to assemble philanthropic capital and standard investors in the same structure. This division occurred through (i) a public offering with restricted distribution efforts, investor-oriented and in accordance with Instruction No. 476 issued by CVM (Brazilian Securities Commission), regarding unsecured debentures, with additional collateral; and (ii) two private placements, corresponding to two series of simple debentures, of unsecured and subordinated types respectively.

The first debenture with social impact has a ten-year deadline and an interest rate of 7% per annum. “Throughout the model structuring process, we have made sure to develop a legal structure that met the social needs of the operation. Allowing social impact companies to access the capital markets is no doubt a great innovation. This solution generates return on investment and, at the same time, allows startups and families to access capital with significantly lower rates comparing to those charged by the market. Besides, all agents involved end up winning, especially the families, which will be able to access all Vivenda’s services”, states Alexei Bonamin, TozziniFreire’s partner.

He goes on: “Years ago, I took part in the structuring of Brazil’s first FIP (Private Equity Investment Fund) with social impact (social bond). I am very pleased to keep collaborating with the development of social impact investments in Brazil. This is the very purpose for me to have been working on the capital markets for more than twenty years”.

Programa Vivenda’s social impact bond was appointed as an inspiring initiative in the contest “La Vivienda en el Centro de la Nueva Agenda Urbana”, organized by ONU-HABITAT. The award ceremony will happen in June at the III Foro Latinoamericano y del Caribe de Vivienda y Hábitat, in the Dominican Republic. This Brazilian public offering will also be presented in more than 200 countries by ONU-HABITAT as a model for other programs.