Material Fact of derivative agreements of "equity swap" board approval

Rhea-AI Summary

Embraer (NYSE: ERJ) announced its Board of Directors has approved derivative agreements of 'Equity Swap' with Banco Itaú BBA. The agreements, effective December 13, 2024, will involve cash settlement within 12 months and cover up to 16,156,597 common shares. Under the swap terms, Embraer will receive price variations of its traded shares plus dividends while paying CDI plus a fee. The primary purpose is to mitigate share price fluctuations in anticipation of future payments related to the company's long-term incentive plans.

Positive

• Implementation of price protection strategy through equity swap mechanism
• Potential risk mitigation for future long-term incentive plan payments
• Dividend benefits included in the swap agreement's active end

Negative

• Additional financial costs through CDI plus fee payments
• Exposure to significant share volume (16,156,597 shares) in derivative agreements

Insights

Financial Analyst

This equity swap agreement represents a significant financial hedging strategy by Embraer. The deal with Banco Itaú BBA S.A. covers up to 16,156,597 common shares and is designed to protect against share price volatility for the company's long-term incentive plans. The structure allows Embraer to receive share price appreciation and dividends while paying CDI plus a fee. This is a prudent treasury management move that helps reduce financial uncertainty and better manages compensation-related expenses. The 12-month duration provides sufficient time coverage while limiting long-term exposure. This type of derivative instrument is commonly used by large corporations to manage equity-linked liabilities efficiently.

Risk Management Expert

The equity swap arrangement demonstrates sophisticated risk management by Embraer. By implementing this hedging strategy, the company effectively transfers the market risk of share price fluctuations to Banco Itaú BBA S.A. The cash settlement feature provides flexibility while avoiding physical delivery complications. The inclusion of dividend pass-through in the active leg ensures comprehensive economic exposure matching. The CDI-linked passive leg aligns with Brazilian market standards for corporate financing. This structured approach to managing long-term incentive plan obligations shows proactive risk governance and financial prudence.

EMBRAER S.A.
PUBLICLY HELD COMPANY
CNPJ 07.689.002/0001-89
NIRE 35.300.325.761

MATERIAL FACT

SÃO JOSÉ DOS CAMPOS, Brazil, Dec. 12, 2024 /PRNewswire/ -- Embraer S.A. ("Company") (NYSE: ERJ, B3: EMBR3) informs its shareholders and the market that its Board of Directors, in a meeting held on December 12, 2024, according to the minutes published on the CVM and Investor Relations websites, approved the execution by the Company, with Banco Itaú BBA S.A., of derivative agreements of "Equity Swap", referenced in the shares issued by the Company. Equity Swap agreements will observe the following limits and conditions:

Equity Swap Settlement: cash settlement, within a maximum period of 12 months from December 13, 2024.

Maximum Exposure: up to 16,156,597 common shares, observing the limit established in CVM Resolution No. 77/22.

Conditions: the Equity Swap will allow the Company to receive the price variation related to its shares traded on the stock exchange plus any dividends distributed to the shares subject to the Equity Swap (active end) and pay CDI plus a fee (passive end), during the term of the agreement.

Purpose: need to mitigate fluctuations in the prices of shares issued by the Company, in view of future payments to be made by the Company within the scope of its long-term incentive plans.

São José dos Campos, December 12, 2024.

Antonio Carlos Garcia
Executive Vice-President and CFO

View original content:https://www.prnewswire.com/news-releases/material-fact-of-derivative-agreements-of-equity-swap-board-approval-302330856.html

SOURCE Embraer S.A.

FAQ

What is the maximum share exposure in Embraer's (ERJ) new equity swap agreement?

Embraer's equity swap agreement has a maximum exposure of 16,156,597 common shares, subject to CVM Resolution No. 77/22 limits.

When does Embraer's (ERJ) new equity swap agreement expire?

The equity swap agreement has a maximum period of 12 months from December 13, 2024.

What are the payment terms of Embraer's (ERJ) equity swap agreement?

Embraer will receive share price variations plus dividends (active end) and pay CDI plus a fee (passive end) during the agreement term.

Why did Embraer (ERJ) enter into the equity swap agreement?

Embraer entered the agreement to mitigate share price fluctuations in view of future payments for its long-term incentive plans.

Who is Embraer's (ERJ) counterparty in the equity swap agreement?

Banco Itaú BBA S.A. is Embraer's counterparty in the equity swap agreement.