A series of corporate bond blow-ups in Brazil has raised alarms about the stability of Latin America’s largest economy, with parallels being drawn to recent jitters in the US credit market following the collapse of auto parts group First Brands. Bonds from prominent companies like waste management firm Ambipar, petrochemical giant Braskem, and biofuels producer Raízen have seen sharp declines, sending shockwaves through Brazil’s corporate credit market.
Over the past month, Ambipar’s 2031 bonds plummeted to a mere 13 cents on the dollar as the company sought creditor protection ahead of a likely bankruptcy filing. Braskem’s 2041 bonds also dropped significantly, falling below 40 cents, while Raízen’s 2035 debt dipped to just 75 cents. These moves, although largely attributed to company-specific issues, have echoed broader concerns about credit markets in the wake of failures like those of First Brands and subprime auto lender Tricolor in the US.
As Jeff Grills, head of US cross markets and emerging markets debt at Aegon Asset Management, explained in an interview with Financial Times, the sell-offs highlight the risks in global credit markets: “Accidents can happen anywhere in credit markets.” However, he emphasized that these events are “idiosyncratic situations” tied to specific companies, and there is no indication of a broader systemic issue in Brazil’s corporate credit market—unless the country faces a significant slowdown in growth.
Ambipar’s collapse has been particularly dramatic, as the company had previously made waves with its global waste and hazardous clean-up acquisitions. In 2023, it achieved a US listing and launched its debut international bond offering, followed by a notable rally in its shares. However, after a high of R$26.85 at the end of 2024, Ambipar’s shares have now fallen to just R$0.60 ($0.11), reflecting investor concerns over the company’s fragile financial structure and its investments in a troubled receivables fund tied to Banco Master.
In contrast, Braskem, despite facing its own challenges with a global market glut and unresolved environmental issues, remains a key player in Brazil’s economy. The company’s bonds have dropped from the 90-cent range to the 60-cent range over the past year, exacerbated by fears of a protracted petrochemical downturn and uncertainties surrounding its ownership structure, as Novonor (formerly Odebrecht) has struggled to resolve its long-running sale process.
Raízen, a joint venture between Shell and Brazilian conglomerate Cosan, has been grappling with financial difficulties following a costly expansion. Despite selling assets to reduce its leverage, the company recently reassured investors that it had no plans to restructure its debt, although this has done little to quell investor anxieties.
The sell-offs across these companies have triggered concerns about investor confidence in Brazil, with many questioning the country’s legal and regulatory environment. Vladimir Timerman, CEO of São Paulo-based activist fund Esh Capital, pointed to Ambipar’s creditor protection filing as a red flag for Brazil’s corporate debt landscape. “Ambipar’s precautionary measure for protection against creditors should give chills to any creditor in Brazil,” Timerman said, adding that the regulatory body’s failure to act earlier in the crisis could have prevented the current turmoil.
Despite these challenges, corporate borrowers in emerging markets, including Brazil, have generally benefitted from a surge in emerging market assets this year. The yield on a JPMorgan index of emerging market corporate dollar debt has fallen to about 6%, its lowest premium since 2007. However, the Brazilian segment of this index has seen a sharp widening of spreads, highlighting the growing risks in the region. As Eric Fine, emerging market debt portfolio manager at VanEck, noted, the increase in spreads reflects concerns over liquidity and the potential for further corporate distress in Brazil.
As Brazilian companies continue to navigate these turbulent financial waters, the fallout from these bond price declines is serving as a reminder of the inherent risks in emerging market credit. Investors are now more cautious, with many opting for a more thorough analysis of individual companies rather than relying on broad credit spreads.
