With a drop in interest rates the situation should ease, but the scenario remains challenging; According to analysts, the number of judicial recovery requests is expected to remain close to this year
A line of companies is already forming to sit at the negotiating table with their creditors in 2024. Retail is in its infancy, with names like Casas Bahia, For example. There is also aviation. At the end of the year, the Objective hired consultancy Seabury Capital to position itself for a major overhaul of its capital structure, involving renegotiations with foreign investors and local banks. Some in the market are betting that the airline can repeat the experience Latin America and file for judicial recovery in the United States.
Other names are Unigel, which has already started mediation with its creditors, guaranteeing 60 days of protection against charges, after bondholders requested the early maturity of their debts, and General Shopping. The latter has liabilities with holders of foreign debt securities (bonds) of more than $800 million and has had a legal dispute since 2019 with this group. For Fitch, the financial situation of the owner of 16 real estate projects in the country is “unsustainable”.
“It will be a first semester of development of cases in progress and with the possibility that emblematic cases emerge in different sectors,” said Pinheiro Neto partner Giuliano Colombo. He says, however, that these will not necessarily be restructurings under the control of the courts and that the companies’ first attempt should be a private negotiation, to avoid burdening the judicial recovery process.
The impression of experts in the corporate financial restructuring market is that the first six months of 2024 will continue this year too. The start of the cycle of cuts will have had no effect on the cost of borrowing for businesses, while economic growth still languishes.
“The double-digit interest rate is expected to be maintained through much of next year and that is aggressive to the capital structure for the vast majority of companies, which are highly leveraged,” said Luciano, director of corporate finance and of the restructuring of FTI Capital Advisors. Lindemann.
Decline in interest
Siegen Reestruturação de Empresas partner Fabio Astraukas adds that although interest rates have started to fall, this has not passed on to the cost of credit, maintaining pressure on companies’ financial expenses. Added to this are companies’ narrow margins, because they are unable to transfer costs to products, and high personnel costs. “The pressure factors against businesses have not been eliminated and mainly affect those in retail and services, sectors that will still remain fragile,” says Astraukas.
Another problem is that not all companies have access to bank credit, which increases the cost of capital, which can exceed 20%, considering the risk premium (spread), adds Daniel Lombardi, partner at G5 Capital. “The entrepreneur is vulnerable to the cost of capital and inflation, a process that he does not control, and at the same time he is not able to transfer prices at the speed of rising costs,” he says.
A brigadier’s paradise
As interest rates fall, the outlook is that the situation will ease. “But there is no Red Brigades paradise planned for next year,” says Lombardi. For him, the scenario for 2024 is still very challenging and it is very likely that the number of judicial recovery requests will remain close to this year’s pace.
In the cumulative period from 2023 to October, the number of judicial recovery requests requested was 1,128. The order record was set in 2016, with 1,800. The growth in processing this year, in addition to interest, is linked to the pandemic and the changes in production and consumption habits linked to it.
Pinheiro Neto’s Colombo also says that given recent experience, companies will seek more restructuring tools and try to get ahead of harassment from creditors. “As the use of restructuring processes matures, we are seeing more strategic and less reactive court recoveries,” he says.
Capital market
Companies may seek judicial recovery for reasons other than purely financial ones, such as the fact that their debts are dispersed in the capital market. There are several cases in which companies have encountered difficulties in managing the credits deriving from the issue of bonds.
In most cases, the problem lies in bringing these investors together in the face of the dispersion of credits to make decisions that require a high approval quorum, but also in the resistance of these groups to accept the restructuring presented by the company.
A good example is Unigel, which did not file a request for judicial recovery. The bondholders did not accept the conditions presented to the other creditors and decided to request early payment of their credits.
The company has not yet filed a request for judicial recovery, but is in the process of doing so. He has resorted to mediation and has 60 days to speak to his creditors. During this period none of them will be able to manage the company. But beyond that, Light, Americanas and Oi face problems with bondholders.
“This change had an impact on the restructuring. Before the company had a liquidity crisis and it was enough to make five calls. Now with the capital market it is different”, explains Luiz Fabiano Saragiotto, partner at Journey Capital. According to him, the impact of the Americans on the credit market leads to a selectivity that could force some high-risk companies to seek a restructuring of their liabilities.
Source: Terra
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