By Brazil Stock Guide – The political fight for power in Brazil’s southern state of Santa Catarina is adding pressure on creditors of state-owned water utility CASAN, putting its R$500 million debenture at the centre of an unfolding electoral dispute.
CASAN has called a bondholders’ meeting for March 2 to seek approval to avoid the early acceleration of its fourth debenture issuance, sold in 2025. The company argues that the expiration or non-renewal of municipal concessions through March 2026, linked to regulatory constraints under Brazil’s sanitation framework, should not be treated as a default event.
The proposal includes temporary waivers easing dividend distribution restrictions and changes to the collateral structure backing the bond. The adjustments would allow the replacement of municipalities in the receivables pool used as collateral and recognise continued service provision even without formally renewed concession contracts.
Political risk has already materialised. In Chapecó, Santa Catarina’s second-largest city, the local government issued a decree on Friday declaring the forfeiture of CASAN’s concession, originally signed in 2016 for a 30-year term. City officials cited recurring water shortages, failure to meet contractual targets and delays in infrastructure investments. A 120-day transition period was established before a new operator is hired.
The move comes amid a fragmentation of the state’s right-wing political bloc ahead of the 2026 gubernatorial election. Chapecó mayor João Rodrigues, from the PSD, is expected to step down to run for governor, backed by party leader Gilberto Kassab. He will challenge incumbent governor Jorginho Mello, from the PL, who is seeking re-election.
Analysts say the political split increases the likelihood of municipalities confronting state-controlled companies, turning sanitation policy into a campaign issue and raising uncertainty over CASAN’s concession base.
For bondholders, the March meeting will determine whether they are willing to absorb heightened political and regulatory risk to prevent acceleration of the R$500 million debt, as electoral competition raises the prospect of further municipal breakups.