More companies are seeking to restructure their debts; recent issues came out with shorter maturities
Otavio Guazzelli — Foto: Gabriel Reis/Valor
A group of companies that had managed to negotiate debts with creditors in recent years without having to restructure will now have to deal with heavy maturities until the end of 2024 amid rising costs brought about by high interest rates in the country.
A study carried out by the consulting firm FTI at the request of Valor shows that the debt of Brazilian companies maturing between the end of this year and December 2024 amounts to R$100 billion, considering only capital market debt, that is, bonds and debentures. The figure could be much higher if bank debt is taken into account.
Among the companies in this situation is meatpacker BRF, which put its pet food unit up for sale and negotiated a contribution with businessman Marcos Molina, owner of Marfrig, and the Arab fund SALIC. The will inject R$4.5 billion in the business. Other companies in a difficult situation and with heavy maturities next year are power utility Light, retailer Via, education company Cogna, food producer Camil, cement maker InterCement, and phone carrier Oi. The latter is facing its second court-supervised restructuring.
“There are many companies in this situation that have survived for years with minor restructuring,” said Luciano Lindermann, a director at FTI. The consulting firm’s study found another problem: the maturity of recent debt issues is shorter.
The study shows that the percentage of debt issued with a maturity of more than six years has dropped significantly since 2020, to 32% of the total value of issuance from 68% of total issuance that year.
With many companies strangled and unable to find a long-term solution to their maturities, pressure that increases with the more expensive cost of debt service, companies’ demand for restructuring has grown, something that is expected to continue even if key interest rate Selic start to fall as expected in August. “There are a lot of people worried about maturities in the coming years,” said Renato Boranga, a director of FTI. Among the immediate alternatives, according to the executive, many of these companies are seeking the so-called temporary capital, which is typically extended by special situations funds.
Otavio Guazzelli, co-head of Banco Moelis in Brazil, said that each company is a different case of restructuring. “The background to all of this is largely the pandemic and its effects, we had a trifecta. There was the first impact, with the frustration of cash flow and revenues. At that time, governments around the world, including Brazil, were pumping money into the economy. As a result, companies took on debt to fill the gap. Revenues and cash flow recovered significantly, but not to the point where everything was solved. There was also a sharp devaluation of the real, and companies were affected by the exchange rate. The third factor was the increase in interest rates in Brazil and around the world,” he said.
In addition to these factors, last year was guided by the elections and the uncertainties about the economy from the results of the polls, according to Mr. Guazzelli, which contributed to a more challenging scenario to refinance debts. “I think most companies can restructure and have a new chance. In a restructuring situation, by definition, we have to find a solution, or the company goes bankrupt. The worst is over, given the current scenario,” said the Moelis executive.
For Mr. Guazzelli, the market has become very sophisticated over the past 15 to 20 years, leading to a significant increase in special situations firms. “Some financial institutions that held assets started selling them to specialized funds.”
Houlihan Lokey, which opened an office in Brazil this year, is already working on major restructurings in the country. “We did not see a big wave of restructurings in Brazil during the Covid-19 and until the middle of last year, like the peak that occurred in the United States. With the ample supply of cheap capital, many companies postponed the problem, in several cases with leverage,” said Bruno Baratta, ex-Lazard and head of investment bank’s local office.
According to the executive, the rising interest rates and the tightening of the credit market, after the Americanas debacle, hit the liquidity of companies that are looking for solutions, such as the sale of assets and access to temporary capital. “Those who can, in many cases, are still postponing the problem in anticipation of a benign interest and growth scenario. If that scenario does not materialize in a relatively brief time, the problems may return,” he said.
Ivan Trucci, a partner at Starboard, said that corporate debt levels are very high, which may lengthen the restructuring queue. “The pandemic was a big ‘standstill’ for debt, and companies also took on more debt,” said the executive.
Starboard, in addition to acting as an adviser for companies in recovery, also has a special situation fund arm, which has also received demand from companies looking for a solution to their debt. “We don’t give short-term capital; we help with the solution. The increase in the cost of debt has created a lack of liquidity,” he said.
According to Roberto Zarour, a partner in the restructuring department of the Lefosse law firm, the demand for so-called “liability management” (risk management that avoids mismatch between assets and liabilities) has increased since the end of last year, with many companies concerned about the upcoming maturities.
Some of these maturities have already been extended by creditors during the pandemic when lenders implemented a broad program of payment relief to mitigate the effects of the pandemic crisis. “Many companies are looking for capital and anchor investors,” he said.
The entry of anchor investors in financing has marked several operations throughout this year to adjust companies’ balance sheets. In addition to BRF’s secondary offering, which will be completed this week, health operators Dasa and Hapvida made multi-billion issues earlier this year. Both companies counted on capital injections from their founders, respectively the Bueno family and Pinheiro Koren. Another company with high debt that needed capital from its controlling shareholder was Tok&Stok.
The retail sector has been one of the hardest hit. However, Mr. Guazzelli of Moelis said that this segment is undergoing a process of secular change, with e-commerce, digitization, and changes in consumer habits. “I don’t see a new, strong wave of court-supervised reorganization. With the positive signs for the economy, with the expectation of falling interest rates, I don’t see this stress repeating itself in the short term. In addition, foreign investors are more optimistic about Brazil than local investors. Even in the United States, the economy has been resilient despite the restrictive monetary policy to fight inflation, and the probability of a hard landing is low.”
Light informed that everything will be dealt with within the court-supervised restructuring and the proposals will come in the plan, which must be released by Saturday. Via made a debenture issue this year, maturing in 2025. InterCement and Oi declined to comment. Camil and Cogna did not reply to requests for comment.
*Por Fernanda Guimarães, Mônica Scaramuzzo — São Paulo
Source: Valor International