Ambipar, Braskem, and More: Why Nord Warns Brazil’s Private Credit Market Faces "Extreme Danger" Without Fiscal Policy Shift in 2025
- The Ticking Time Bomb in Brazilian Private Credit
- Why Retail Investors Are Playing With Fire
- The Fiscal Policy Deadlock
- Where Nord Is Putting Its Money
- The Domino Effect Nobody's Discussing
- FAQ: Your Private Credit Questions Answered
Brazil's private credit market is walking a tightrope, according to asset manager Nord. With high interest rates squeezing corporate borrowers and investors chasing dwindling yields, the firm warns of a potential "structural crisis" if fiscal policies don't change course soon. This DEEP dive examines why Ambipar and Braskem's recent credit events might just be the beginning, how retail investors are taking on hidden risks, and why Nord is betting on Brazilian stocks while fleeing private debt.
The Ticking Time Bomb in Brazilian Private Credit
Marília Fontes, Nord's fixed-income analyst, paints a grim picture: "We're seeing private credit spreads collapse to negative territory - investors are basically paying to take corporate risk." The root cause? Brazil's stubbornly high interest rates have created a dangerous imbalance. On one side, yield-hungry investors piled into credit instruments like CRIs and CRAs after traditional options (LCIs/LCAs) became less attractive due to 2024 regulatory changes. On the other, the same high rates are choking corporate borrowers. "It's a lose-lose scenario," notes Fontes. "If rates stay high, more Ambipar/Braskem-style defaults loom. If they fall, credit fund returns will plummet, triggering mass redemptions."
Why Retail Investors Are Playing With Fire
Caio Zylbersztajn, Nord's partner, reveals a troubling trend: "Today, you earn less on a AAA corporate bond than a federal security - yet individuals keep buying." The lure? Tax exemptions. But these investors often don't realize they're trading bank-guaranteed instruments for unsecured corporate debt. "They're taking equity-like risk for bond-like returns," Zylbersztajn warns. Data shows retail money now dominates Brazil's CRI/CRA markets (68% of 2024 volumes), chasing average yields just 0.5% above government bonds - the narrowest spread since the Americanas crisis.
The Fiscal Policy Deadlock
Nord's team sees little hope for relief. "Brazil has one foot on the gas (fiscal spending) and one on the brake (high rates)," Fontes observes. This contradiction keeps structural interest rates elevated. The global backdrop worsens it - even as U.S. inflation cools, Nord expects sustained high long-term rates there due to debt dynamics. For Brazil, this means the Central Bank's hands are tied. "Without fiscal reform, we're stuck in this vicious cycle," says Fontes. Recent CMN resolutions have only exacerbated the squeeze, requiring more collateral for bank credit instruments.
Where Nord Is Putting Its Money
While fleeing private credit ("our smallest exposure"), Nord is bullish on Brazilian equities. "The stock market's valuation is so compressed that downside seems limited," Fontes argues. She sees potential for a major rally if there's even slight fiscal improvement. But timing is tricky - with local investors "trapped" in high-yielding fixed income, any rebound may depend more on foreign flows. "When U.S. rates eventually decline in an orderly fashion, that could be Brazil's moment," Fontes suggests. For now, Nord's pivoting to government bonds and select alternative assets.
The Domino Effect Nobody's Discussing
Beyond immediate credit risks, Nord highlights a systemic concern: concentration. Over 60% of recent CRI issues come from just three real estate developers, while CRAs are dominated by agribusiness giants. "One major default could freeze entire sectors," Zylbersztajn cautions. The firm also notes worrying parallels to pre-2008 U.S. markets - complex securitizations, stretched underwriting, and retail investors blindly chasing yield. "The difference is Brazil lacks the Fed's crisis playbook," he adds.
FAQ: Your Private Credit Questions Answered
Why is Nord so pessimistic about Brazilian private credit?
Nord sees a perfect storm: razor-thin spreads, excessive retail participation, and corporations strained by high rates. Their analysts believe current yields don't compensate for rising default risks.
What alternatives does Nord recommend?
The firm favors government securities and select equities while avoiding new private credit allocations. They're also exploring inflation-linked assets given fiscal uncertainties.
How could U.S. rates impact Brazil's credit market?
Persistently high U.S. rates maintain pressure on Brazil's Central Bank, limiting its ability to cut rates and relieve corporate borrowers.
Are all private credit instruments equally risky?
No - Nord distinguishes between bank-sponsored LCIs/LCAs (safer) and corporate CRIs/CRAs (riskier). But post-2024 regulations have made the former less attractive.
