Brazilian corporate bonds got hammered in February after the implosion of Americanas SA, further weakening the outlook for firms already wrestling with high borrowing costs.
(Bloomberg) — Brazilian corporate bonds got hammered in February after the implosion of Americanas SA, further weakening the outlook for firms already wrestling with high borrowing costs.
Six of the 10 worst-performing issuers in Latin America this month are Brazilian companies, data compiled by Bloomberg show. Dollar-denominated notes from Gol, Atento and Light lost at least a quarter of their value, while Azul, Stone and BRF bonds delivered losses of between 10% and 15%.
The pile of Brazil corporate debt trading at distressed levels — which yield an average of at least 10 percentage points more than US Treasuries — climbed to $11.9 billion, according to data compiled by Bloomberg. That compares to $9.6 billion at the end of last year.
The default of retailer Americanas temporarily halted the sales of local bonds and led to widening spreads, with banks striking a more cautious tone on the pace of credit origination. The Rio de Janeiro-based company filed for bankruptcy protection on more than 42 billion reais of debt in late January.
Oi SA, which emerged from one of the largest corporate restructurings in Brazil’s history just last year, filed for emergency protection from creditors earlier this month. The telecom operator is expected to enter bankruptcy protection later this week.
Brazil’s Oi Seeks Creditor Protection Ahead of Debt Payments
The turmoil comes amid persistent uncertainty over President Luiz Inacio Lula da Silva’s fiscal plan, with economists expecting Brazil’s inflation and interest rates to remain higher for longer. The left-wing government has yet to unveil a new fiscal framework after a rule that limited growth of public expenditure was scrapped.
“We are seeing a dose of reality: rate cuts might not arrive until later in the year, GDP growth will struggle to exceed 1%, and fiscal responsibility remains in question,” said Guido Chamorro, the co-head of emerging-market hard-currency debt at Pictet Asset Management. The Americanas event and Lula’s first signs “have proved a painful combination for some Brazilian issuers.”
Companies including call center operator Atento were stung by higher funding costs, and rating firms have flagged that if the local turmoil doesn’t prove temporary, refinancing risks will be significantly increased. Some firms such as Marisa Lojas SA already tapped financial advisers as they seek to restructure short-term obligations.
Latin America’s Worst Bonds Crater on Sell-First, Ask-Later Mood
While most investors don’t expect a full-blown credit crisis, faith in Brazil corporate borrowers is wavering and markets are bracing for restructurings. The higher indebtedness of Brazilian families and companies coupled with prospects for sluggish growth might keep the credit environment under pressure in the short term.
“Access to low-cost, always-open credit markets should not be taken for granted going forward,” said Luis Olguin, an emerging-market debt portfolio manager at William Blair International in London. “We do not see a credit crisis emerging in Brazil although risk premiums will reflect recent events and provide better entry points for stronger credits.”
–With assistance from Maria Elena Vizcaino.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.