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Welcome to The Brink. It's Giovanna Bellotti Azevedo and Rachel Gamarski, reporting from Sao Paulo, where we looked at a pair of corporate restructurings that have thrust corporate Brazil back into the spotlight. We also have news on Jefferies, Banca Progetto and a Canadian subprime lender.
More Drama
Brazilian companies have once again grabbed the attention of credit investors after two major firms announced plans this week to restructure a combined $13.5 billion of debt outside of court.
Sugar and ethanol producer Raízen has reached an agreement to rework about 65 billion reais ($12.6 billion) of debt, while Brazilian supermarket chain GPA struck a deal covering about 4.5 billion reais in obligations.
Raízen's debt pile is far larger and more globally dispersed than GPA's, but the two cases coming in quick succession have put a spotlight back on Brazil, Latin America's largest economy.
Borrowing costs in the country are near their highest levels in two decades, economic growth has slowed and inflation has proven sticky, squeezing both corporate margins and household purchasing power. Companies that loaded up on cheap debt during the post-pandemic liquidity boom are now facing a much pricier refinancing environment.
GPA's deal came weeks after it cast significant doubt on its ability to continue as a going concern following a dire earnings report. The company, which had substantial amounts of debt maturing this year, has struggled to revive its core food business amid double-digit interest rates.
The balance-sheet overhaul at Raízen -- controlled by Shell and conglomerate Cosan -- gives the company breathing room to pursue a more comprehensive revamp after coping with mounting financial pressure for months. Its credit rating plunged from investment-grade to deep-junk within a day, raising investors' concerns about how quickly stress can escalate in Brazil's corporate debt market.
Companies often prefer out-of-court processes because they tend to be faster, cheaper and less disruptive than a judicial restructuring. Once firms reach an agreement with a big enough share of lenders, a judge can ratify the deal so it becomes binding.
Other companies remain under scrutiny as investors reassess credit risk. Petrochemical firm Braskem continues to grapple with high leverage, liabilities tied to the collapse of a salt mine it operated and uncertainty over a potential change in control, keeping its bonds volatile.
Steelmaker CSN is also being closely watched as weak steel prices and elevated interest costs pressure cash flow, prompting asset sales and refinancing efforts. The company reported net debt of 41.2 billion reais at the end of the fourth quarter, lifting its net leverage ratio to 3.47 times earnings.
Brazil's corporate bond market was rattled last year by turmoil at waste-management company Ambipar and Braskem, though investors largely viewed those episodes as company-specific. Now, the latest batch of restructuring announcements has investors asking: Are these isolated cases, or a sign that the economic backdrop is taking a broader toll on corporate Brazil?
Cesar Fernandez, a partner at Alpha Credit Advisors, said international investors largely see the recent situations as idiosyncratic rather than systemic. Still, they're a good reminder to take a close look at companies' books.
"One important lesson from this cycle is the role of credit ratings, which in some cases have created an overly optimistic perception of credit quality based on qualitative factors that did not fully reflect underlying balance-sheet risks," Fernandez said.
High Alert
- A group of bondholders to Selecta Group asked a federal judge to dismiss a lawsuit accusing them of violating US antitrust laws by entering into a creditor pact to negotiate a deal with the Swiss vending machine company that favored them over others.
- Third Point, the hedge fund run by Dan Loeb, is getting ready to scoop up credit assets that others are selling to raise liquidity as debt market cracks spread.
- McAfee bought back about $287 million of unsecured notes at a discount, taking advantage of a software rout that hit its debt stack, according to people familiar with the situation.
- Cornerstone Building Brands disclosed a slump in fourth-quarter earnings that triggered a sharp selloff in the Clayton, Dubilier & Rice-backed company's debt and underscored a deepening slowdown in the construction industry.
- The impact of artificial intelligence on the software industry will not be severe enough to cause a sector wide wave of credit rating downgrades, S&P Global Ratings said.
Notes From the Brink
Italy's biggest lenders are seeking to revise a plan to rescue Oaktree Capital Management's Banca Progetto after warning that new developments in a criminal investigation have heightened legal risks, Sonia Sirletti reports.
Intesa Sanpaolo, UniCredit and three other Italian lenders sent earlier this month a letter to commissioners appointed by the Bank of Italy to oversee Banca Progetto's administration, according to people familiar with the matter who asked not to be named because they aren't authorized to talk about it. In the letter, they warned that the bailout deal agreed earlier this year was based on incomplete information, they said.
The group of lenders, which also includes Banco BPM, Banca Monte dei Paschi di Siena and BPER Banca, is now seeking additional guarantees and a revision of the original terms agreed with the country's interbank deposit protection fund, known as the FITD, the people said.
The rescue plan is designed to prevent a collapse of Banca Progetto, which had €5.4 billion in deposits at the end of 2023. A demise would very likely trigger a payout by the industry's interbank fund, a scenario which would end up costing the banks more.
The Latest on... Jefferies
A trail of corporate wreckage is pushing Jefferies' hard-charging ways into public view as firms fight to recoup their lost millions, Rachel Graf and Carmen Arroyo report.
Jefferies is facing a slew of lawsuits after its bets on car-parts supplier First Brands and water-vending machine business Water Station unraveled amid allegations of fraud at both firms. A fund tied to the bank is also locked in a legal fight with bankrupt restaurant chain owner Fat Brands, while Jefferies has emerged as a backer to failed UK mortgage lender Market Financial Solutions.
The fallout from the collapses -- that span nearly two years -- sparked questions about internal oversight at Jefferies, which built its name as a go-to bank for risky, highly-leveraged debt.
The mounting lawsuits could pose a larger financial threat. But that may pale beside the potential reputational sting, which could hinder its leveraged finance and asset management ambitions as well.
By the Numbers
Goeasy's stock and bonds tumbled this week after the Canadian subprime lender suspended its dividend, withdrew its financial outlook and disclosed hundreds of millions of dollars in loan losses, Stephanie Hughes and Paula Sambo report.
The Mississauga, Ontario-based company will record a total of about C$331 million ($244 million) in net charge-offs for the fourth quarter and write down C$233 million tied to consumer loans, interest and fees associated with its LendCare unit, which finances autos and "powersports" equipment such as all-terrain vehicles.
Goeasy's shares have shed two-thirds of their value this week, and its 6.875% note due in 2030 plunged about 15 cents on the dollar in the same period, hitting a record low 73 cents.
Within LendCare, weaker-than-expected recoveries on delinquent accounts forced the company to write off loans. After extended efforts to restructure the debt, repossess collateral and sell vehicles through auctions, the lender determined that it had no chance to recover money on many accounts that had been in arrears for a long time.
The company expects its net charge-off rate to be around 12.9% for 2025, well above previous guidance for 7.75% to 9.75%.
More From The Terminal
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