When two large companies seek out-of-court restructuring on the same day, coincidence is unlikely. The filings by Grupo Pão de Açúcar and Raízen suggest something broader: Brazil’s private credit market is entering a more cautious phase, with less euphoria and far less confidence that balance sheets alone are enough to measure risk.
In both cases, the companies negotiated temporary standstills with creditors covering roughly R$70bn of obligations while they reorganise their liabilities. Investors are already pointing to other potential pressure points, including Braskem, Companhia Siderúrgica Nacional and Oncoclínicas. Whether those concerns prove justified is almost secondary. What matters is that creditors are becoming more sceptical.
The roots of the shift lie in the past decade. As interest rates fell and capital markets expanded, corporate borrowing increasingly moved away from banks. Corporate bonds and securitised credit products grew rapidly, while credit funds proliferated. Capital markets now provide roughly a third of corporate financing in Brazil — about twice their share ten years ago.
That expansion broadened companies’ access to funding but also encouraged more aggressive balance sheets. As long as economic growth held and refinancing remained easy, the risks appeared manageable. But credit cycles tend to expose weaknesses only when conditions tighten. Brazil’s prolonged period of high interest rates has done exactly that.
The first major shock came with the accounting scandal at Americanas in 2023, which exposed governance failures and undermined confidence in audited financial statements. Since then, investors have become far more cautious toward companies carrying heavy leverage or relying heavily on refinancing.
Higher borrowing costs are now forcing a painful adjustment. Creditors who once expected smooth refinancing increasingly face the prospect of restructurings — and sometimes meaningful haircuts.
Global asset manager Franklin Templeton recently told Brazil Journal that it has tightened its credit strategy in Brazil following recent defaults and restructurings. Balance sheets alone, executives said, are no longer sufficient. Governance, ownership structures and qualitative risk assessments now matter just as much.
Such episodes also revive an uncomfortable question: what auditors and rating agencies can realistically detect before a crisis emerges. Both depend heavily on information supplied by the companies themselves. When weaknesses surface only after a public collapse, investors inevitably ask how early warning signs were missed.
Brazil’s private credit market is not collapsing. But it is undergoing a forced maturation. Wider spreads, stricter due diligence and greater emphasis on governance are likely to shape the next cycle.
Brazil’s central bank is expected to begin cutting interest rates in the coming months, which could ease some of the pressure on highly leveraged companies — though investor confidence may not recover immediately.
The risk now is that a more selective credit market could also end up acting as a brake on economic activity.