Private credit still feels the effects of the crisis in Americanas – 01/14/2024 – Market

The disclosure of Americanas’ billion-dollar debt, in January 2023, shook Brazilian private credit. One year after the event, which was worsened by the Light case, this market has not yet fully recovered. While risk aversion persists, the gradual improvement since then is the result of a more positive macroeconomic scenario and debenture issues in the sanitation sector.

“We cannot say that the private credit market has completely recovered from the Americanas episode. We have not yet returned to the level [de spread anterior]but the rate can fall to pre-American levels”, says Marcelo Mello, president of SulAmérica Vida, Previdência e Investimentos.

The rate that Mello refers to is the risk premium paid for bonds. It translates into the spread, the difference between the return on these securities and the CDI, a rate that follows the Selic (currently at 11.75%).

The retailer’s accounting scandal and the crisis at the energy concessionaire increased the market’s perception of risk, which considered the possibility of systemic contamination, with a chain failure of other broadcasters. Americanas and Light are issuers of several debt securities, which have suspended payments. The market’s suspicion is that other companies would also fail to meet their obligations.

“This episode called into question the credibility of several institutions in the financial market. From the banks, which were unable to catch on, to the rating agencies. Apart from financial auditors and reference shareholders [LTS]which also has Ambev”, says Caio Domenico Schettino, allocation director at Criteria Investimentos.

And, the greater the risk perception, the greater the return offered, as investors charge more to finance the riskier companies. Furthermore, debentures (company debt securities) lost market value, with holders of the securities getting rid of them at any price. And the remuneration rate reflects this in an inversely proportional relationship. When the asset becomes cheaper, its interest tends to rise, and vice versa.

According to data from the JGP manager, before Americanas revealed its “accounting inconsistencies”, on January 11 last year, the spread of Brazilian debentures whose profitability is linked to the CDI was 1.85%. In other words, a debenture paid 1.85% more than a CDB that yields 100% of the CDI, for example.

The following week, this spread reached 837.67%, according to data from JGP. Without considering Americanas assets, it was at 2.16%.

“The pricing of everything on the market changed because the investor’s psychology was greatly affected. It almost became a witch hunt, as to who would be the next Americanas, if any company used the same financial makeup tricks”, says Domenico.

In February, market stress worsened and the spread reached 3.95%, the highest level since 2020, when the private credit market suffered a strong devaluation with the start of the Covid-19 pandemic. From the second half of 2023 onwards, this interest difference started to decrease and is currently back to 2.16%. This means that the market still demands more to finance companies due to the Americanas episode.

“Even solid companies had to increase their spread due to Americanas. The market is cautious, thinking it will contaminate all companies, but that is not the case”, says Vinicius Romano, director of fixed income and CNPI analyst at Suno Research.

According to the expert, last year it was common to find debentures on the market that paid a remuneration rate of 6.5% to 7%, in the case of those linked to the IPCA variation. Now, he says, the maximum that can be found is 6%.

It wasn’t just the spread, the supply was also affected. In relation to 2022, the issuance of debentures last year (until November) fell by R$101 billion in real terms (discounting the IPCA), reaching R$196.6 billion, according to data from Anbima.

“The occasion closed its doors [do mercado]. Many companies that were on the treadmill to issue [títulos de crédito provado] they gave up. It really got in the way, it was really bad”, says Romano.

From mid-2023 onwards, emissions returned with big names in infrastructure, especially due to the concession auctions by Cedae (Companhia Estadual de Águas e Esgotos do Rio de Janeiro), which led the winners to seek financing via debentures.

Another factor that contributed to the resumption of private credit was the prospect of lower interest rates in Brazil and the United States. Lower interest rates are beneficial to the capital market, as they reduce the cost of capital and reduce the attractiveness of fixed income.

“The macroeconomic part helped more in the market’s recovery, especially in the last quarter, than the improvement in risk perception”, says Romano.

According to the sector, the improvement should strengthen in 2024. Mello, from SulAmérica, estimates a higher issuance than in 2023, but still lower than in 2021, when the Selic was at historically low levels.

He also predicts that taxation of exclusive funds could stimulate the private credit sector, especially incentivized assets, which are exempt from income tax, such as infrastructure debentures.

“With the greater demand for these debentures, the remuneration rate will fall, but the investor should not fail to prioritize good cash generators with low debt”, says Mello

The experts’ recommendation for investors is to take advantage of this last window of opportunities before the spread falls.

“Although the margin has decreased, the premiums are still attractive and the biggest risks are the external scenario and the Brazilian fiscal scenario”, says Romano. He recommends infrastructure debentures, with emphasis on energy, highways and sanitation companies.

Domenico Schettino, from Criteria, also sees good opportunities in the health sector, civil construction, transport and logistics, in addition to infrastructure debentures. “You can find players that are leaders in their markets,” he says.