By Arthur Tomaz de Oliveira (University of São Paulo Law School) and Henrique Kasai (Mattos Filho)
Debtor-in-possession financing is the device modern reorganization law uses to solve the debt-overhang problem: a distressed but viable firm needs new money precisely when no rational lender will advance it on ordinary terms, and the law responds by granting the rescue lender priority over existing claims. The U.S. version of this device, Section 364 of the Bankruptcy Code, has an extensive empirical literature behind it, and that literature has shown that even in a mature market the DIP loan is an instrument of control and carries documented rents. What that literature could not test is what happens when the formal architecture of DIP financing is transplanted into a jurisdiction that lacks the institutional substrate on which Section 364 operates. Brazil ran that experiment. Law 14.112/2020 imported the Section 364 logic almost verbatim into the Brazilian reorganization statute, creating an express extraconcursal super-priority for post-petition financing and a procedural framework modeled on the American approach.
Our paper measures the size of that legislative step and then benchmarks it against the market that followed. On the law on the books, we score statutory protection of the DIP financier across ten dimensions and find it rising from 1 of 11 points before the reform to 10.5 of 11 after it. The half point withheld is itself a finding: the new priming power expressly excludes assets held under fiduciary title, which is the form Brazilian secured credit predominantly takes, so the priming mechanism arrived with little to prime. On the market, we build the first census of Brazilian DIP financing, a hand-collected database of 35 documented distressed-financing operations verified against court dockets, securities filings and audited statements, 22 of which are confirmed Brazilian-law DIP facilities.
The de facto findings are three. Penetration is thin even on a size-matched basis, at roughly 3% of large-company reorganizations against roughly 62% in the U.S. benchmark. Pricing is bimodal: insider money priced below any market reference, often compensated through control rather than coupon, or arm’s-length money priced at multiples of the U.S. mean spread, with almost nothing in between. And the market is opaque by design, with lender identity, price and collateral routinely outside the public record; we treat that opacity as a documented feature of the data rather than as missing values.
We attribute this profile to three frictions between the statute and the market: judicial discretion in recognizing extraconcursal priority, which turns a statutory entitlement into execution risk; variability in the enforcement of fiduciary collateral, which the lender prices as variance rather than level; and concentration among distressed-credit lenders, with a single genuinely competitive tender observed in five years. We read the Brazilian record as the control-and-rents dynamic of the American literature operating without its counterweights of settled priority, functional priming, occasional tenders and observability. We are explicit about the limits of the design: the reform created a market where almost none existed, the de facto layer is descriptive rather than causal, and the disclosure environment does not permit observation of the full population of instruments. The policy implication is that the formal transplant is the beginning, not the end, of the reform: the institutions that make the priority self-executing, including a public register of court-authorized financings, must be built alongside the rule.
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