High interest rates and the credit crisis lead to a 65% drop in debentures in February

The issuance of debentures, which are debt securities issued by companies to raise funds in the financial market, had a sharp drop in February.

According to monthly data from the Brazilian Association of Financial and Capital Market Entities (Anbima), new debenture issues totaled BRL 6.6 billion last month, the lowest monthly amount since at least the beginning of 2022 and a drop of 64.5% in relation to January (R$ 18.7 billion). In comparison with February last year (R$ 24.3 billion), the drop is 72%.

The retreat reflects not only gradually worse economic conditions, due to high interest rates and political uncertainties, but, in large part, also by the “scare” caused in the market by the billionaire bankruptcy of Americanas in January, according to analysts consulted by the CNN .

“This result reflected the environment of risk aversion that marked the beginning of the year in view of the credit events and requests for judicial recovery of companies that occurred in the period”, wrote Anbima in its bulletin.

“Combined with this, the macroeconomic context also did not contribute, with the lack of indication of a new fiscal framework for this year and the perspective of maintaining high interest rates for a longer time amidst questions from the government itself regarding the conduct of the system of target inflation by BC”, completes the entity.

With a debt declared at BRL 43 billion, Americanas opened its judicial recovery process a few days after announcing, in early January, the discovery of a billionaire gap caused by a series of accounting errors in its balance sheets. It was the fourth largest judicial recovery ever opened in the country.

In the following few weeks, Marisa announced a debt restructuring, Livraria Cultura had its bankruptcy decreed and rumors that Light would also be opening a restructuring process – denied by the company – also agitated investors in the private credit market.

“There is a combination of factors that led the private credit market to practically close to new issues in February,” said Fernando Antunes Marinho, partner and credit manager at Valora Investimentos, a fund manager specializing in private credit and fixed income.

“Closing means that the funds are not willing to buy [novos títulos de dívida corporativa] because managers want to know beforehand where things are going to end up. There was an increase in uncertainty that hurt the shares of most local funds and led to a general correction in bond prices,” he adds.

Uncertainties linked to the change of government, doubts regarding the future of the fiscal issue and the shock of the Americanas bankruptcy are factors mentioned by Marinho to explain the perfect storm that collapsed over the credit segment of the capital market in February.

The rumor linked to Light, which arrived at the beginning of the month informing that one of the largest energy distribution concessionaires in the country was hiring a financial consultant, was, according to him, “the icing on the cake”.

The conjunction of headwinds scared the investors of that market, and, without demand, the prices of the debentures were completely recalculated in the secondary market, which is where the big investors that already own a debt security of a company can negotiate and resell their papers directly for other investors.

“All company assets had a loss in value of around 50% – shares, bonds, local debentures”, says Marinho. “A debenture that was being traded, for example, at CDI + 1% at the end of January on the secondary market, is now being traded at CDI + 1.5% or CDI + 2%.”

Without buyers and having to pay higher interest rates to attract them back, new debenture issues by companies also froze – which is what explains the drop in funding for the month shown by Anbima data.

“Systemic Crisis”

“The Americanas event seems to me, today, not to be just something delimited to a company, Americanas, or to a sector, retail, or to a sector of the financial market, private credit”, said the former director of Banco Central Tony Volpon in an interview with CNN.

“Due to the ramifications and effects it had, I think it became a systemic macroeconomic factor,” he added.

Volpon is one of the big names beginning to join the chorus that there are signs that Americanas’ billionaire default could affect the country’s credit market more broadly and, in the worst case scenario, push the economy into recession.

The collapse would include a wave of big banks that are much more cautious about making new loans to businesses and individuals, which could further impinge on economic activity.

The meltdown of the bond market in the first full month after the Americanas scandal would be just one more sign of that.

In the view of Marinho, from Valora, on the other hand, at least for the capital market, February was just the worst month of an adjustment process in a market that should little by little return to normality – even if at a new level, less warm than in recent years.

“The price conditions of these assets became more attractive and there is now more investor appetite, more managers making more aggressive purchases”, he says. “It is already the beginning of a normalization, an accommodation of the secondary market, at a new price level, and that market that ‘closed’ and February is already reopening.”