Alternatives to facilitate the coordination of fixed-income creditors in times of crisis

Pedro Castelar · Originally published in JOTA, July 2026 · Portuguese original

In 1739, David Hume pointed to a distinctive trait of human nature: the difficulty of coordinating many individuals, even when they share the same interest. Hume’s example, the draining of a common meadow, can be carried over to a current challenge in the capital markets: coordinating the holders of widely held securities in out-of-court reorganizations.

The Brazilian corporate debt market has grown and broadened its reach. According to B3 data, 943,000 individual investors hold corporate debt securities, with BRL 412 billion in custody. Debentures, real estate receivables certificates (CRIs) and agribusiness receivables certificates (CRAs) are no longer reserved for institutional investors and now form part of the portfolios of a much broader investor base.

This progress is positive. It diversifies companies’ sources of financing and broadens investors’ options. It also brings challenges, however, particularly in an environment of high interest rates and elevated corporate leverage. In this context, understanding the available debt renegotiation tools, and their effects, becomes essential.

Out-of-court reorganization (recuperação extrajudicial) has proved an attractive alternative since the reform introduced by Law No. 14,112/2020. The mechanism allows for more flexible negotiation between debtor and creditors, without necessarily requiring continuous court oversight or the involvement of a judicial administrator or a general meeting of creditors. The negotiation takes place, to a large extent, outside the courts.

This flexibility can preserve value and reduce costs. It also demands greater organization and coordination among creditors. Once approved by creditors holding more than half of the claims in each class covered, the plan binds all of them, whether or not they have adhered to it. Creditors’ ability to organize thus becomes decisive in protecting their interests.

Recent cases show that this discussion is no longer merely theoretical. The out-of-court reorganization proposals of Raízen and Grupo Pão de Açúcar illustrate how capital markets creditors may receive different treatment if they do not engage.

Coordination tends to be simpler among institutional creditors, such as financial institutions and investment funds. These players generally have adequate financial and human resources, access to information and the ability to decide quickly. The problem is more acute when the creditors are individual investors dispersed across the market. This is where the collective action problem observed by Hume, and later developed by Mancur Olson, arises.

These investors share similar rights and interests but lack sufficient incentives to lead the negotiation. The reasons vary: (i) they believe their vote will not be decisive, as their holdings are too small to prevail; (ii) they expect others to bear the costs of advice and negotiation and, in that setting, hope to “free ride” on them; (iii) they have less information than the company and institutional creditors; (iv) they cannot reach decisions within the timeframe a restructuring requires; or (v) upon reflection, they rationally choose to remain passive, concluding that the costs of participation outweigh the benefits of a proactive and engaged stance.

Fortunately, there are measures to address the collective action problem. The literature shows that the problem is mitigated by rules that reduce the cost of participation, create incentives for engagement, facilitate communication and allocate responsibilities. These incentives may be positive, such as seats on committees, reimbursement of expenses, information sharing or greater influence in the negotiation. They may also be negative, such as reduced influence for those who remain inactive.

The logic is straightforward: if the benefits of action are collective but the costs of organizing fall only on the creditors who mobilize, the rules should curb free riding by reducing the advantages enjoyed by those who wait for others to defend their interests.

The Brazilian Corporation Law (Lei das S.A.) and the Securitization Legal Framework (Marco Legal da Securitização) provide some tools to mitigate this problem. One is the trustee (agentefiduciário), responsible for protecting the interests of the holders of these securities and assisting in their representation. More flexible quorums for convening and voting at holders’ meetings, reimbursement of monitoring expenses and the exercise of collective rights are tools designed to keep absenteeism from preventing these creditors from reaching decisions.

These mechanisms are important, but their effects are limited in crisis scenarios. Overcoming the collective action problem requires measures at two distinct moments. The first precedes the crisis and calls for governance better suited to stress scenarios in indentures and securitization terms. The second follows the onset of the crisis, when the priority becomes ensuring information, coordination and negotiating capacity in a timely manner.

Indentures could set out rules of engagement among the issuer, the trustee and investors in the event of financial stress. They could also govern the formation of committees with creditor representatives, the sharing of information and the engagement of independent advisors. International experience in the sovereign bond market, with its collective action clauses, may serve as a source of inspiration.

In addition, the trustee’s role can be rethought. Especially in widely held issuances, the indenture could grant the trustee additional powers to act in crisis situations, including closer interaction and coordination with the issuer, the engagement of advisors and the submission of proposals to the holders’ meeting. Such an expansion should come with compensation commensurate with the complexity of the role and with particular attention to the duties of care, loyalty and transparency, given the potential increase in risks arising from agency conflicts.

Once the crisis sets in, the challenge becomes operational as well as normative. The mechanisms established in advance must enable a rapid response: organizing the holders, analyzing the alternatives independently, engaging in dialogue with the company and participating effectively in negotiations with other creditors. In issuances with a dispersed holder base, funding legal and financial advisors becomes especially relevant. Dedicated technical support can assist holders in the negotiations and mitigate substantially unfavorable terms.

Finally, there is room for bolder solutions. An investment fund with professional and independent management that coordinates and consolidates the rights of this dispersed creditor base could strengthen bargaining power and help defend these creditors’ interests. Such structures, however, may require waivers or more flexible interpretations of regulatory requirements. In this context, timely and adaptable action by the Brazilian Securities and Exchange Commission (CVM) becomes essential to investor protection.

Hume’s lesson remains timely: common interest does not guarantee coordinated action. When investors are numerous and dispersed, formal rights may fail to translate into real negotiating power. The development of the corporate debt market therefore requires specific mechanisms to overcome collective action challenges in times of crisis. The literature on the subject and the experience of other markets point the way. The challenge now is to turn these alternatives into market practice.