Global Deflation Alert: Slumping Brazilian Economy Inundated With Bankruptcies And Bad Credit

By Ben Bartenstein & Filipe Pacheco at Bloomberg

In his two decades covering Brazil, Fitch Ratings’s Joe Bormann says he’s never seen the nation’s companies in such a dire state.

To appreciate just how bad things are, consider this: Brazilian courts granted more than 5,500 bankruptcy filings in 2015, the most since 2008, according to Sao Paulo-based credit rater Serasa Experian.

-1x-1 (11)

Brazil’s deepest two-year recession in more than a century and plummeting commodity prices are leaving businesses in industries from steel to air travel among the most at risk of default, according to Fitch. And more pain is looming in Latin America’s biggest economy as borrowing costs soar, predicts Bormann, who oversees a team of 60 analysts responsible for rating more than 500 companies in the region.

“It’s legitimately a credit crisis,” he said.

No Brazilian company has raised financing in overseas bond markets since June as an unprecedented corruption scandal at the state-owned oil producer and ratings downgrades have prompted investors to shun the nation’s financial assets. Fitch and Standard & Poor’s cut Brazil’s bond rating to junk last year. The local currency, which declined 33 percent last year, has slipped 0.8 percent this year.

-1x-1 (10)

“Nothing has gotten better,” said Wilbert Sanchez, founding partner and managing director at TCP Latin America, a financial firm in Sao Paulo. “Now, they’re just throwing in the towel.”

-1x-1 (9)

Source: Brazil's 5,500 Bankruptcies in 2015 Signal Deeper Credit Crisis - Bloomberg

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

Get Access