Companies delay local bond deals as demand weakens

As a result, companies have chosen to shelve planned issuances for now due to weak demand, people familiar with the matter said.

At home, rising corporate leverage has become a growing concern. Investors fear that more companies could join the list of distressed borrowers, which has expanded in recent weeks, prompting closer scrutiny across the market.

More recently, delays in the release of financial statements by sanitation company Aegea further dented sentiment. Investors are increasingly stepping back from private credit or waiting for better market conditions before committing new capital.

The risk-off mood has also affected financial bills issuance. RCI Brasil, the local financing arm of Renault Group, postponed a fundraising citing “current market conditions,” while automaker Stellantis delayed closing its own deal. The impact has extended to direct-lending funds, known in Brazil as FIDCs.

According to asset managers and banking executives, part of the capital is being redirected toward safer instruments, such as certificates of deposit issued by large banks and backed by the Credit Guarantee Fund.

Other investors are simply holding cash, waiting for clearer visibility before reallocating funds.

One senior fixed-income banker said spreads in private credit deals had been below what he described as a “natural level,” reflecting strong demand at a time when funds were still deploying earlier inflows.

In recent weeks, however, many transactions have triggered so-called “market flex” clauses, which allow banks to adjust terms such as pricing or maturities in response to significant changes in market conditions. That was the case with deals by mobility infrastructure company Motiva and Minas Gerais power utility Cemig, sources familiar with the transactions said. Cemig ultimately raised R$1.15 billion, roughly half of the initially planned amount.

“Activating this type of clause is not common. It gives banks the right to adjust terms, such as tenor or pricing, in response to extreme events,” said Gustavo Rugani, a partner in capital markets at TozziniFreire.

A banking executive said the use of such clauses reflects the fact that many deals brought to market this month were structured earlier this year, when sentiment was more optimistic and expectations pointed to sharper cuts in the Selic base rate.

Unsold bonds

Given the current backdrop, some companies have opted to wait for improved conditions and withdrawn offerings altogether, another market participant said. “For some, it now makes more sense to rely on bank financing,” the person said.

A further deterrent has been the fact that many recent deals—such as a R$1.56 billion issuance by fuel distributor Vibra—ended up being largely taken onto banks’ balance sheets. In Brazil, underwriters typically provide firm underwriting, meaning they absorb any unsold bonds.

“Banks ended up holding more securities than they wanted and now have less room and appetite, which also helps explain the slowdown in issuance,” another banking executive said.

According to this source, the reopening of dollar-denominated issuance for Brazilian companies has also led larger issuers to consider tapping international markets instead of raising funds locally.

Market mood

Pedro Breviglieri, a credit manager at Reach, said the environment remains highly fluid, making it difficult to determine whether the recent widening in spreads will persist. He noted that an end to the war in Iran could help clarify the outlook.

One issue being closely watched is whether the slowdown in primary issuance could lead to a shortage of assets for fund managers to allocate. “If that happens, we could see a shift toward the secondary market, which would also affect spread dynamics,” he said.

Breviglieri said the current environment differs from 2023, when Brazil’s private credit market was last shaken. At that time, unexpected events such as the accounting scandal at retailer Americanas undermined investor confidence. Now, stress appears more concentrated among companies struggling to deleverage in a high-rate outlook.

Fabio Jacob, head of local debt at Scotiabank, said the situation is far from comparable to 2023 “because there is no concern about systemic risk.” Companies that can afford to wait are likely to delay issuance until conditions improve, he said. “It takes time to unlock the market. Since March, many bonds have remained on banks’ balance sheets, and we need to wait until that inventory is gradually distributed.”

Structural demand

Despite the current challenges, the outlook for Brazil’s private credit market remains broadly positive, according to Luis Sales, head of products at Banco Fator.

“The market remains strong and its structural outlook has not changed,” he said. “What we are seeing is more of a postponement of issuance decisions amid both domestic and external noise. But given leverage levels, companies will still need funding to roll over debt and sustain operations.”

Rugani also noted that refinancing needs should soon bring issuers back to the market. “Companies still need funding and need to refinance more expensive debt,” he said. “Even expectations of a Selic rate at 12% by the end of 2026 were already encouraging liability management, but the need to raise funds remains.”

Thiago Junqueira, a partner at law firm Pinheiro Neto, said the market reflects a period of increased investor scrutiny. He noted that caution persists, as further debt restructuring cases are expected to emerge.

For now, market participants say there is little visibility on when conditions will improve. One executive said any recovery is likely to begin at the company level, with firms strengthening balance sheets and reducing leverage.