Growing number of Brazilian companies seek out-of-court debt fixes amid high rates

By Victoria Pacheco and Luciana Magalhaes

Markets were rattled earlier this year when sugar and ethanol company Raizen BMFBOVESPA:RAIZ4 sought Brazil's largest-ever out-of-court debt restructuring at $12.5 billion. But the company was hardly alone.

After years of punishingly steep interest rates — among the world's highest — a growing number of Brazilian companies are turning to creditors to escape debt while avoiding the costs of formal bankruptcy protection proceedings.

Filings for out-of-court restructuring have surged from 16 in 2021 to 84 last year, spanning sectors from manufacturing and mining to retail, agribusiness and logistics, according to the Brazilian Out-of-Court Restructuring Observatory, or Obre.

So far this year, 33 companies have followed the same path.

The surge reflects the burden a 14.25% interest rate has imposed on many Brazilian companies, especially the ones that borrowed heavily during the pandemic when the benchmark Selic rate fell to a record-low 2%.

But it is also due to a 2020 legal reform which strengthened the mechanism in Brazil, producing "a cultural shift," said Juliana Biolchi, the director of Obre.

The update made out-of-court restructurings more flexible, allowing companies to exclude some creditor classes from negotiations and encouraging earlier debt talks before a court-supervised process becomes necessary, said Luiz Fabiano Saragiotto, managing partner at Journey Capital.

In-court restructuring is complex and costly because "it involves all creditors, can limit access to financing, damage a company's reputation and disrupt operations," Saragiotto said. "Once a court accepts a restructuring filing, that label tends to stick."

A SIMPLER SOLUTION

Out-of-court restructuring allows distressed companies to negotiate directly with selected groups of creditors. Once approved by a simple majority, the restructuring plan becomes binding on all creditors in the affected classes, preventing holdouts from blocking the deal.

The simplicity of the process compared to in-court solutions has made it "increasingly associated with less severe financial distress," Biolchi said.

The mechanism gained wider attention in Brazil in 2024 when retailer Casas Bahia BMFBOVESPA:BHIA3 won court approval for an out-of-court restructuring covering about 4.1 billion reais ($784 million).

The plan did not affect suppliers, business partners, customers, or employees, the company said.

Casas Bahia's restructuring was followed by a string of high-profile cases, including furniture retailer Tok&Stok, also in 2024. More recent filings include retail group GPA BMFBOVESPA:PCAR3, which in March sought court approval to reorganize about 4.5 billion reais in debt.

Companies in the agricultural sector, currently dealing with a high debt burden, have also embraced the process, underscoring its use across industries.

Buoyed by Raizen's deal, companies seeking out-of-court restructurings have reached combined debts exceeding 109 billion reais in 2026, compared to 41.5 billion reais in 2024, with markets feeling the impact.

"Investors today are more concerned about credit risk," said Caio Viggiano, managing director for fixed income at investment bank Itau BBA, citing global conflicts, high rates, and the wave of corporate restructurings.

The number of out-of-court restructurings is expected to rise in the coming months.

Oncoclinicas BMFBOVESPA:ONCO11, Latin America's largest oncology treatment provider, is among those considering it, according to local media reports and a person familiar with the discussions. Oncoclínicas declined to comment.