Credit Suisse sees large companies in Brazil with a healthy level of debt in 2023

Credit Suisse analysts estimate that 2023 should be another good year in terms of default by large and medium-sized Brazilian companies, despite uncertainties in the economic environment.

“Our analysis…indicates that Brazil’s corporate segment has significantly more protection and is much better prepared against ‘higher interest rates for longer’ and recession scenario.”

The Swiss bank team assessed the corporate leverage situation by looking at around 1,300 companies with a combined total of BRL 2.7 trillion of outstanding bank and corporate debt.

Credit concluded that, despite the increase in the Selic rate, Brazilian companies in the aggregate had a net debt over 12-month Ebitda of 1.5 times, half of what they had before the 2015-2016 economic crisis.

The interest coverage ratio is at 4.6 times, well above the minimum acceptable ratio of 1.5 times, in addition to being 2.5 times above the 2014 level.

Of the 12 sectors, only two have net debt to Ebitda above 3 times, while three sectors have interest coverage around 1.5 times or less.

“The data suggest low refinancing risk, with short-term debt to total loans at historic lows and the short-term debt service coverage ratio among the best in history,” they say.

They added that Brazil’s corporate sector has benefited from higher Ebitda margins – around 24% from 2017-2022; significantly better than in the period 2011-2015 – around 18%.

But the segment of micro and small companies is different, they pointed out.

“Our sample data suggest increasing levels of leverage, leading us to prefer banks with low exposure to this segment, that is, Itaú Unibanco”, stated Marcelo Telles and Daniel Vaz in a Sunday report.