City of Sao Paulo Precatorios in 2026: EC 136/2025 Reset the Price, Not the Investment Case

Published on May 21, 2026.

By Leonard da Rosa.

After EC 136/2025, the question is no longer whether the City of Sao Paulo's direct-settlement route remains investable. The question is the clearing price.

A note on Brazilian terms used in this article

For international readers, the key local references are:

• City of Sao Paulo (PMSP): the municipal government of Sao Paulo and, by extension, its Treasury — the debtor analyzed here. Local Portuguese: Prefeitura do Municipio de Sao Paulo. Referred to throughout as "the City."
• Precatorio: a final court-ordered payment claim against a Brazilian public entity, paid through a constitutional budget queue.
• EC 136/2025: Constitutional Amendment 136 of 2025, which redesigned the federal-state-municipal precatorio payment regime.
• RCL (Receita Corrente Liquida): Net Current Revenue, the constitutional fiscal base used in annual payment-cap formulas.
• TJSP / DEPRE: the Sao Paulo Court of Justice and its precatorios department.
• PGM-SP: the Office of the City Attorney, which administers Settlement Call 01/2025.
• Account II: the segregated court account used to fund direct settlements, separate from chronology and priority flows.
• OC (Ordem Cronologica): the chronological-order cohort, i.e., the vintage year in which a requisition entered the constitutional queue. 2025 vintage means OC 2025.
• Support-type claims (`alimentares`): salary, pension, social-security-linked, personal-injury, and death-related claims that Brazilian law gives payment preference over general claims.
• Priority (`prioridade`): statutory super-priority inside the support-type class, usually tied to age, serious illness, or disability.
• Direct settlement (acordo direto): a voluntary settlement route in which the creditor accepts a discount for faster monetization through the dedicated channel.
• ADI (Acao Direta de Inconstitucionalidade): a direct constitutional challenge filed before the Supreme Federal Court (STF).
• IPCA: Brazil's official consumer price index, published monthly by IBGE.
• Focus / BACEN: the Central Bank of Brazil's weekly survey of market expectations for macro variables, including IPCA.
• SICONFI: the Brazilian Treasury fiscal accounting system, the official source for RCL data.
• FIDC: a Brazilian receivables investment fund, broadly comparable to a private credit or securitized receivables vehicle.

Framing under EC 136/2025

The overdue stock of the City and its consolidated debtor entities at the Sao Paulo Court of Justice closed at R$ 40,500,784,490.33 on February 28, 2026. The 2025 RCL pulled from the Brazilian Treasury fiscal accounting system (SICONFI) totaled R$ 100,652,954,891.44. As an underwriting proxy for Article 100, paragraph 23, of the Federal Constitution, as amended by EC 136/2025, the 40.24% stock-to-revenue ratio places the City in the 2.5%-of-RCL tier, implying a minimum 2026 annual deposit of R$ 2.516 bn.

In 2025, the City's total deposit at TJSP reached R$ 4.042 bn, of which R$ 2.005 bn flowed into Account II. The 2026 theoretical settlement channel (R$ 1.258 bn) sits 37.24% below what Account II actually received in 2025. The annualized run rate from January and February 2026 deposits is R$ 2.67 bn, already close to the new total floor.

!City of Sao Paulo: 2026 annual settlement channel versus 2025 Account II

Settlement Call 01/2025: a larger queue still under review

The Office of the City Attorney (PGM-SP) registered 8,781 proposals in Settlement Call 01/2025, against 6,854 in 2024, 3,809 in 2023, and 3,153 in 2022. Item 6.1 of the call splits the review into three blocks:

• 2009 and 2010 vintages, in their own batches;
• 2011 to 2024 vintages, by month of presentation, with separate batches for priority support-type claims and non-priority support-type claims plus other categories;
• 2025 vintage, processed last, in two dedicated batches (priority and non-priority/other).

Through April 23, 2026, the published sequence totaled 5,333 approvals. The most recent decision was the 2025-vintage priority support-type claims batch (961 approvals). The final 2025-vintage batch remains pending.

!City of Sao Paulo: Settlement Call 01/2025 queue as of April 23, 2026

Between the 8,781 proposals submitted and the 5,333 approvals already published, 3,448 proposals remain without a public outcome. Some will resolve as denials, duplicates, appeals, or adjustments. The surviving balance rolls into the final batch — non-priority support-type claims and other categories in the 2025 vintage — which concentrates the economically most sensitive portion of the next window.

The payment pipeline is operating

From the Sao Paulo Court of Justice's public settlement-payment lookups for March and April 2026, 1,575 records were extracted (887 in March and 688 in April). Cross-referenced by case identifier against the approved batches from Settlement Call 01/2025, 249 paid records already appear in the published batches. The largest block belongs to the August batch for non-priority support-type claims and other categories, approved on March 13, 2026: 138 payment records released through April 23.

The infrastructure is converting proposals into payments within the expected window. The underwriting variable, therefore, is not binary receive-or-not risk; it is effective time to payment.

Next-cycle concentration in the 2025 and 2026 vintages

Overdue stock by vintage shows why the next settlement cycle should be competitive:

The 2025 vintage alone carries R$ 5.41 bn of overdue stock; the 2026 vintage already stands at R$ 8.51 bn, of which R$ 7.81 bn is support-type claims — a figure close to the R$ 8.45 bn issued in 2025 per the annual official map, reflecting that practically nothing from the 2026 vintage has yet been paid. When the next settlement call opens, it is reasonable to expect material supply of claims originated in 2025 and 2026, including from professional acquisition vehicles. The currently defensible thesis is 2025 vintage and earlier, priced for 36 months as the base case — that is where the TJSP pipeline is delivering and where the Settlement Call 01/2025 queue has already been substantially worked through.

Purchase pricing

Working assumptions:

• purchase in April 2026;
• credit accrual under EC 136/2025: compounded IPCA and a 2% simple annual default-interest charge;
• IPCA path drawn from the Focus survey median (BACEN's market expectations report), reference date April 17, 2026;
• 60% of adjusted value as the settlement payment. This is the conservative underwriting base: Settlement Call 01/2025 pays a higher share on older vintages, but origination discipline should not price to the more generous rule — future calls may standardize the discount at 40% across all vintages;
• target net return of 25% to 30% per year, net of taxes, legal costs, and operational and structuring expenses. The range mirrors the level Brazilian precatorio FIDCs are currently seeking on direct origination in Brazil — it is the bar the asset must clear to compete with active buy-side capital in the market.
• All return figures are BRL-denominated and do not include a separate USD hedge, U.S.-level tax treatment, or investor-specific structuring constraints.

The base case is 36 months to payment. 48 months is a tail scenario, not the central case — especially for 2025 vintage and earlier, whose pipeline is already running within the expected window at TJSP. The longer horizon is kept in the matrix as a stress reference, not as the primary bid-setting rule.

Technical price ceiling, 2025 vintage and earlier, as % of current adjusted face value:

!Technical price ceiling matrix for 2025 vintage and earlier

In Brazilian reais, for R$ 10,000,000.00 of current adjusted face value in April 2026:

Sensitivity to IPCA

The Focus path on April 17, 2026 has IPCA converging to target across the carry horizon, with roughly 10% to 11% cumulative inflation over 36 months. The underwriting sensitivity is symmetric: a positive IPCA surprise above the curve priced at entry runs in the buyer's favor, because the credit keeps accruing while the contracted return is fixed. On the other side, IPCA below Focus modestly compresses returns but does not break the thesis inside the 25%-30% per year × 36-month quadrant.

Tenor upside: what happens if the carry shortens

The 36-month base case is the underwriting anchor, but two realistic shortening vectors push the effective return above the contracted target at entry:

• An STF decision on ADI 7873 during the carry window may reopen the EC 136/2025 annual flow and compress the queue, reducing effective time to payment;
• Selective origination of 2025 vintage and earlier claims that are more likely to sit near the front of a possible new settlement call in late 2026 or early 2027, naturally shortening payment to 24 to 30 months.

For a buyer entering at the base-case price (36 months) where payment actually occurs in 30 or 24 months, the effective return changes as follows:

The gain is captured because credit accrual under EC 136/2025 keeps running: when the tenor shortens, the excess between what the asset accumulates and the contracted return belongs to the buyer.

Origination note

The 30% per year × 48-month cell — R$ 2.64 mn per R$ 10 mn of face — may still source claims, but not in meaningful volume. The price sits below what over-the-counter dealers currently pay for recent-vintage claims, so available supply narrows to occasional liquidity-pressed situations. For a vehicle that needs to build a material position, pricing 30% per year as if the tenor were 48 months pulls the strategy out of the active origination channel.

The liquid corridor, in 2025 vintage and earlier, sits between 32.5% and 36.6% of face — a 25% to 30% per year target over 36 months. Outside it, the buyer either carries priced-in legal upside, accepts a longer tenor, or faces an origination flow that is too narrow to scale.

ADI 7873: legal optionality during the carry

In my view, ADI 7873 gives the position a legal optionality layer during the typical 36-month carry window. I do not price that optionality at entry, but the Court's record on precatorio matters is not neutral: structural choices that EC 136/2025 reintroduces have already been struck down in prior cycles. The two most relevant precedent lines are:

• Interest converging to savings-account economics. EC 136/2025 fixes default interest at 2% simple per year, added to compounded IPCA. In high-Selic environments — i.e., when the Central Bank of Brazil's policy rate is elevated — this design can push creditor remuneration below what an ordinary savings account pays to retail depositors. That is the natural creditor-side analogy to ADIs 4357 and 4425, in which the STF rejected the use of the Taxa Referencial (TR, the reference rate) as the inflation index for precatorios and fixed IPCA-E as the reference.
• Mandatory contributions tied to RCL bands, with no clear stock-clearance horizon. EC 136/2025 tiers the annual deposit floor by stock-to-RCL bands, from 1% to 5% of prior-year RCL. An analogous structure was struck down in ADIs 7047 and 7064, judged in December 2023, in which the STF declared unconstitutional provisions of EC 113/2021 and EC 114/2021 that created an annual spending cap on precatorios with no clear clearance horizon. Modulating the current floor, or relaxing the cap mechanics for the most compromised entities, is the outcome that best fits that line of jurisprudence.

Three scenarios are useful for those carrying the asset:

1. Decision on the merits favorable to creditors on the interest axis, with recomposition of the accrual index and immediate mark-to-market acceleration;
2. Limitation of the cap/tiering mechanism on the minimum contribution, with the effect of compressing the queue and shortening effective time to payment;
3. Prospective modulation, the standard the STF itself applied in ADIs 4357/4425 in 2015 — preserving payments already made while recalibrating the regime going forward. In my view, this is the cleanest institutional outcome and the one that best preserves the equation for those who bought at the post-EC 136/2025 price.

For the assignee, the mechanism is direct: legal optionality follows the credit. If the STF redefines bands, allocations, the accrual index, or the EC 136/2025 floor itself, the gain is captured by the buyer the same way it would be captured by the original creditor.

The discipline I follow is not to pay for legal probability at entry, but to underwrite it as potential upside during the tenor. A firmer STF signal is more likely after the 2026 elections, with room for material decisions before the end of the 36-month base-case horizon.

Closing

EC 136/2025 did not knock down the City of Sao Paulo direct-settlement investment case; it lowered the price the case can support. The underwriting corridor today sits between 32.5% and 36.6% of face in 2025 vintage and earlier, in the 36-month base case — 30% to 25% per year. Outside it, origination becomes narrow; inside it, the TJSP pipeline delivers and ADI 7873 optionality travels with the credit.

This is the public version of the investment case. Portfolio-level parameters — vintage-level sensitivities, prioritized proposal lists, target discount range by block, and expected payment flow — are handled in bespoke advisory and in the full investor studies prepared for Lummen clients.

Related reading

• Sao Paulo State Precatorios in 2026: EC 136/2025, Settlement Funding, and the Direct-Settlement Thesis
• Brazilian Judicial-Credit Due Diligence (2026): What Institutional Buyers Check Before They Buy
• Brazilian Precatorios Explained (2026): General vs Special Regimes, Chronology, and Discount Dynamics

Primary sources

• City of Sao Paulo: closure of Settlement Call 01/2025 with 8,781 proposals
• City of Sao Paulo: precatorio settlements page, updated April 23, 2026
• Sao Paulo Court of Justice (TJSP): precatorio governance portal
• Constitutional Amendment 136/2025, Chamber of Deputies
• Central Bank of Brazil (BACEN): annual market expectations, Olinda API
• Brazilian Bar Association: ADI against EC 136/2025
• Lummen internal base for the City of Sao Paulo study, including TJSP stock consolidation and the cross-reference of settlement payments for March and April 2026.