Riskier companies gain ground in Brazil’s bond market
Gabriel Paula
Fernando Martinho/Valor
Companies seen as carrying higher credit risk—known in financial markets as “high yield,” reflecting their higher risk and higher return—have been taking up more space in Brazil’s local fixed-income market.
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The shift comes against a backdrop of persistently high interest rates, which have chipped away at companies’ cash generation. Over the past two years, the number of debentures falling into this category has jumped from 75 to 135, an increase of 80%.
A survey conducted by FTI Consulting for Valor shows that this growth has far outstripped the debenture market as a whole, which grew just 24% over the same period. FTI defines high-yield securities as those trading at yields of more than 2.5 percentage points above the CDI benchmark rate.
The study also found that roughly 30% of issuers in this category have, at some point, had to pursue some form of financial restructuring—whether through court-supervised or out-of-court proceedings, or through liability-management measures such as capital raises or asset sales.
Market sources who spoke with Valor say that once a company’s securities start trading at high-yield levels, its funding costs climb quickly, making it far harder to return to the debt market. In practice, a company that originally issued debentures at CDI plus 2.5% is unlikely to price a new offering at that same level if its existing bonds are already trading in the secondary market at, say, CDI plus 10%. Investors in that situation would rather buy the existing, higher-yielding securities than the new issue—squeezing out room for fresh offerings and making it harder for the company to refinance its debt.
Issuers currently trading at high-yield levels include Raízen, GPA, and Kora Saúde, all of which are undergoing out-of-court restructurings. Also on the list are CSN, which is working to cut leverage through asset sales, along with Hapvida, Alloha Fibra, and Origem Energia, whose bonds have this year come to reflect a higher risk perception in the secondary market.
Ambipar is not included in this group. Although it is undergoing an in-court restructuring, its debt is mostly held in international markets rather than Brazil’s domestic debenture market.
Underlying this trend is the growing role of capital markets in financing Brazilian companies. In recent years, capital markets have overtaken bank lending as a source of corporate credit, exposing investors to more corporate credit risk in the process.
Gabriel D’Agostini Paula, a director at FTI Consulting and the study’s lead author, says the growth of the high-yield segment has outpaced that of the broader corporate debt market—and expects the trend to continue for as long as interest rates stay high. “The number of high-yield debentures is likely to keep growing,” he said.
The survey found that the energy, sanitation, and logistics sectors currently account for the largest share of debentures in this category. Real estate and agribusiness are underrepresented, since companies in those sectors tend to rely on specialized instruments instead, such as Real Estate Receivables Certificates (CRI) and Agribusiness Receivables Certificates (CRA).
Paula also noted that the sample includes companies that are simply more highly leveraged by nature, given the characteristics of their business models and investment cycles—meaning a high-yield classification doesn’t always signal financial trouble. Still, he added, the high-rate environment is squeezing cash flow and raising the cost of new financing across the board.
Eduardo Parente, also a director at FTI Consulting, said the changing profile of the fixed-income market has reshaped the role of creditors as well. As corporate restructurings become more common, he said, debenture holders are entering negotiations better prepared than before.
Roberto Zarour, a partner in the restructuring practice at Lefosse, expects conditions to stay difficult for the most heavily indebted companies. “The second half of the year is likely to bring a wave of restructurings, with companies still carrying heavy debt loads, interest rates staying high for longer, and a tough economic backdrop,” he said.
Luiz Fleury, a partner at Pinheiro Neto Advogados, argued that the widening spreads seen in the secondary market don’t only reflect deteriorating credit quality at certain companies—they’re also a natural correction following last year’s sharp spread compression. “This is a healthy shift, and it reflects a more mature market,” he said. Fleury noted that just a few years ago, the secondary market still lacked depth, and prices didn’t always fully capture companies’ credit quality.
The companies named in this report did not respond to requests for comment.
