• Itau said to give up rolling over $1.2 billion syndicated deal
  • Utility CPFL said to cut size of planned five-year loan

Brazil’s biggest corporations, already reeling from a growing political crisis and the worst recession in a century, face a new threat: International banks have either stopped lending to them entirely or are demanding dollar-denominated collateral, people with direct knowledge of the matter said.

Not a single syndicated loan has been made to a Brazilian company this year, compared with $12 billion in 2015, and none of the nation’s banks or corporations have sold bonds without dollar guarantees since July, data compiled by Bloomberg show. More creditors decided to shun Brazil in the past 60 days after the nation lost its last investment-grade rating in February, the people said, asking not to be identified discussing private financing negotiations.

While roughly 45 international banks provided dollar-denominated loans to Brazilian companies last year, only about 20 are left now, according to two of the people, who declined to name the ones demanding dollar guarantees or those that have stopped providing credit entirely.

BNP Paribas SA, Sumitomo Mitsui Financial Group Inc., Natixis SA and Citigroup Inc. were the top-ranked bookrunners in Brazil’s syndicated-loan market last year, according to data compiled by Bloomberg.

The worsening political crisis could mean many international banks will stay on the sidelines at least until more signs of stability emerge. Support for impeaching President Dilma Rousseff rose to 68 percent in a March opinion survey from 60 percent in February, and her popularity remained near record lows in a poll released Wednesday by the National Industry Confederation. PMDB, the largest political party in Brazil, said Tuesday it would abandon the ruling coalition, further weakening Rousseff’s hold on power and raising the odds she’ll be impeached.

Reserve Risk

External creditors are especially concerned that the government could divert its international reserves to pay for stimulus measures to head off what’s projected to be a second straight year of economic contraction, two of the people said. Those reserves are seen as insurance that the Brazilian government has enough dollars to pay its international debts.

Rousseff said on March 16 that monetary reserves serve mainly as a cushion against international volatility. While they could have “a role in relation to debt,” they’re not appropriate for investments, she said.

Watchful Waiting

The prospect of impeachment does have an upside for international creditors: A new government might be more successful at implementing long-delayed economic reforms that jump-start the economy. Speculation that a resolution might emerge later this year has left some borrowers waiting to see if they can get better rates if they stay out of the market for now.

Itau Unibanco Holding SA, Brazil’s biggest bank by market value, probably won’t roll over a $1.23 billion syndicated loan that matures in June because the interest rates asked by creditors, at 250 basis points over Libor for three years without dollar guarantees, is considered too high, a person familiar with the Sao Paulo-based bank’s decision said. The company paid 140 basis points over Libor when it borrowed the money in 2013, data compiled by Bloomberg show.

The bank also has plenty of liquidity, allowing it to be more patient than other Brazil corporations without that luxury, the person said. Itau has about 377 billion reais ($105 billion) in cash, cash equivalents and short-term interbank deposits and accounts, according to its financial statements.

Logjam Broken?

One sign of life in the syndicated-loan market is coming from Brazil utility CPFL Energia SA, which may announce a $200 million deal without dollar guarantees as early as next week, the people said. But the transaction comes only after Citigroup and Bank of America Corp., which are running the syndicate, lowered the total from $300 million. And instead of the usual two to four weeks, negotiations with the other banks involved lasted six, one of the people said. A total of four banks will participate, and the interest rate on the five-year loan is 270 basis points over Libor, according to the people, who declined to name the other two lenders.

Representatives at Itau, CPFL, Bank of America and Citigroup declined to comment.

Nidera Sementes Ltda., a unit of agricultural company Nidera BV, is planning a syndicated loan with dollar-denominated guarantees that is generating interest from potential creditors, two people said. The Sao Paulo-based company is negotiating a pre-export finance facility in which offshore clients will deposit their payments directly into an account outside Brazil to which creditors will have access, the people said.

Nidera ‘Pleased’

Nidera is seeking as much as $300 million with a three-year maturity, in a deal coordinated by ING Groep NV, paying 250 basis points above Libor. The company is refinancing maturing lines and is “pleased with the support that the banks are showing to Nidera’s operations in South America,” Nidera’s press office said in an e-mailed statement. Nidera BV is 51 percent owned by Beijing-based Cofco Corp.

Raising money has been particularly hard for for companies with troubled balance sheets. Brazil steelmaker Usinas Siderurgicas de Minas Gerais SA considered a syndicated loan late last year and found the market closed, according to a person familiar with the matter. Usiminas, as the company is known, had to negotiate a standstill accord last month to keep its main bank creditors at bay, and one of its joint controllers is proposing a capital injection.

An official at Usiminas didn’t return an e-mail seeking comment and a phone call went unanswered.

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