Struggling companies: high interest rates drive up debt and squeeze cash flow

(O Globo) A record number of companies has resorted to out-of-court restructuring. The combined debt of large companies has reached R$ 1.7 trillion, according to a survey.

This month, Raízen, a biofuels giant, initiated an out-of-court restructuring (REJ), seeking a solution for R$ 65 billion in debt. It is the largest case ever recorded in Brazil. The day before, Grupo Pão de Açúcar (GPA) had taken the same path. A record number of companies in the country is turning to this mechanism to renegotiate debt with financial creditors.

Setting aside management or operational issues, they share in common strained finances, driven by the combination of an adverse economic environment and persistently high interest rates, which have caused borrowing costs to surge and compressed cash flow.

The 0.25 percentage point cut to the Selic, the benchmark interest rate, announced last Wednesday by the Central Bank’s Monetary Policy Committee, brought the rate to 14.75% per year; even so, it remains at its highest level since August 2006. The reference rate rose from 2% in August 2020 to 15% in June last year.

It was during the period of ultra-low interest rates, at 2%, that the storm began to form. Companies made capital allocation decisions — investments and acquisitions — “leaning heavily” on leverage, says Daniel Wainstein, CEO of Seneca Evercore. As the Selic rate surged, debt began to eat into cash flow:

“If a company is not generating real growth, revenues are increasing at around 5% per year, while debt is growing at 20% or close to that. At some point, the math catches up. And this compounds over time, growth upon growth. Naturally, this has led to a liquidity crisis for many companies in Brazil. It is a very delicate mismatch.”

In 2025, 80 companies resorted to out-of-court restructuring (REJ), a record in the historical series of the Brazilian Observatory of Out-of-Court Restructuring (Obre). So far this year, there have already been seven cases.

“Out-of-court restructuring has become the natural alternative for companies that still maintain the ability to negotiate with their main creditors, have some level of cash flow, but need time to structure this process efficiently,” says Brenno Mussolin Nogueira, from Rayes e Fagundes Advogados.

To restore their financial health, companies are acting on multiple fronts, explains Daniella Fragoso, from BMA Advogados:

“In scenarios like this, to raise funds, companies must, in addition to renegotiating debt, resort to asset sales, receive capital injections from controlling shareholders, or convert debt into equity.”

Rising debt

The debt of 129 companies in the country increased from R$ 1.12 trillion in 2020 to R$ 1.71 trillion last year, a 53% increase, according to a survey by financial data consultant Einar Rivero, CEO of Elos Ayta Consultoria, commissioned by O Globo. Excluding Petrobras from this group, indebtedness rose by 83%, from R$ 727 billion to R$ 1.33 trillion.

It was during this period that interest rates rose from 2% to 15% per year, “highlighting a significantly more restrictive financial environment for raising capital,” he says:

“Even with elevated interest rates, companies continued to increase their debt. Part of this is associated with the need for investments and the refinancing of liabilities, but it also reflects the diversification of funding sources, especially abroad,” says Rivero, noting that indebtedness is also influenced by global credit conditions and the U.S. dollar.

Another factor weighing on cash flow is the increase in the tax burden, which rose from 31.2% of GDP in 2022 to 32.3%.

“Projections for 2026 point to continued growth, already illustrated by the record tax collection in January, of R$ 325.8 billion. It is estimated that, by the end of this year, the tax burden could exceed 34% of GDP. It has never been this high and adds to other ‘bottlenecks’ in day-to-day business operations, such as the rise of the dollar and interest rates,” says Maristela Ferreira de Souza Miglioli, from Ciari Moreira Advogados.

Systemic shock

The interest rate shock in Brazil is systemic and affects companies across all sectors — from healthcare, such as Oncoclínicas, to steel, such as CSN (see more below) — but the degree of impact on each company depends on its capital structure and operational efficiency, says Rodrigo Gallegos, partner at consulting firm RGF and a restructuring specialist. He notes that a Selic rate at 15% translates into 18% to 30% for borrowers, depending on bank spreads.

The cases of Raízen and Grupo Pão de Açúcar, he says, expose inefficiencies that had been masked by cheap capital when the Selic was at 2%:

“In retail, the impact is twofold. The sector already operates with compressed margins. When the Selic rises, the cost of financing working capital and inventories surges, while consumers lose purchasing power.”

In agribusiness, companies leveraged up to expand while conditions allowed it. With the reversal in interest rates, combined with adverse weather conditions, crop failures, and commodity price volatility, cash generation did not keep pace with debt servicing. Last year, there were 1,990 judicial recovery filings in agribusiness alone, a 56.4% increase compared to 2024, according to Serasa Experian. This is the highest level recorded since 2021, when the series began.

For Fábio Astrauskas, from Siegen, a financial restructuring consultancy, the financial challenge requires discipline and strategic vision:

“The combined debt of GPA and Raízen is greater than the amount reported by the Pentagon (U.S.) in the war against Iran in its first six days (US$ 11.3 billion, or approximately R$ 60 billion).”

Capital markets

According to Wainstein, the current environment reflects the volatility to which the Brazilian market is exposed, and mid-sized companies tend to be more affected:

“The interest coverage ratio, which measures a company’s ability to service its debt (the lower the number, the worse), for mid-sized publicly listed companies reached 1.36x, comparable to 2017 levels. For larger companies, which make up the Ibovespa, it stands at 2.56x, the lowest level since 2020.”

As financial conditions tightened, companies began renegotiating their debts. This movement has been supported by the expansion of funding in the capital markets. Data from FGV Ibre show that bank loans are losing share to private debt instruments, which already account for one-third of total corporate credit.

Guilherme Maranhão, from the Brazilian Financial and Capital Markets Association (Anbima), notes that capital markets have helped cushion the impact of high interest rates on companies’ debt servicing capacity and credit quality:

“There have been issuances of debentures (debt securities). The trading of receivables has also increased, with higher volumes of FIDC issuances and securitized debentures (such as CRIs and CRAs).”

Published on 03/23/2026 and available at: https://oglobo.globo.com/economia/noticia/2026/03/22/empresas-asfixiadas-com-juro-alto-divida-dispara-e-pressiona-o-caixa.ghtml