Brazil's Biggest Company Restructuring Signals Debt Crisis Spreading to Mid-Market

Raízen — the joint venture between Cosan and Shell with global exposure to sugar, ethanol, and fuels — this week secured judicial approval for the largest out-of-court reorganization ever seen in Brazil, with total liabilities of R$98.63 billion and adherence from 81.6% of creditors. The judge overseeing the case described the decision as a "historic precedent," and not without reason: the operation restructures a capital stack that had become untenable under the weight of high interest rates, while also signaling that the out-of-court reorganization mechanism can be effectively deployed for companies of systemic scale. Shell will inject R$3.5 billion in new capital, while Rubens Ometto's family office will contribute R$500 million; 45% of the restructured claims will be converted into shares at R$0.50 per unit. The Raízen case is not an isolated one: it reflects a structural tension running through the entire Brazilian economy at this moment — the collision between an expansionary fiscal policy and the reality of interest rates that, though on a downward trajectory, remain high enough to squeeze the cash flow of leveraged companies.

This backdrop is essential to understanding the first relevant move in this week's Focus survey: for the first time since the beginning of the war in Iran in March, economists reduced their projection for the year-end Selic rate, now at 13.75% — a 0.25 percentage point drop from the previous week. The adjustment is modest but heavy with meaning: it suggests the market is beginning to price in some relief in inflationary pressures, possibly aided by signs of de-escalation in the Middle East and by oil's behavior. The dollar closed Monday's session up 0.37% at R$5.087, in a trading day that blended the Focus reading with geopolitical uncertainties. PicPay projects the exchange rate at R$5.37 by year-end, reflecting a risk premium that Brazil's fiscal picture continues to justify with room to spare.

And the fiscal picture, indeed, offers no relief. Gross public debt reached R$10.8 trillion in June, returning to levels observed at the height of the pandemic, with the nominal deficit hitting 9.99% of GDP — the largest among 41 countries tracked by The Economist. The diesel subsidy, created as an emergency measure after the outbreak of the conflict in Iran, has already accumulated a cost of R$7.03 billion, according to ANP. In parallel, the government issued a provisional measure authorizing capital injections of up to R$2.75 billion into guarantee funds and expanding the Desenrola Adimplentes program — credit stimulus measures that analysts classify as electorally motivated and fiscally burdensome. Itaú projects that the fiscal impulse to GDP will decelerate in 2027 but remain positive; Bruno Serra, of Itaú Asset Management, is working with growth below 1% next year and does not rule out a recession. Bradesco BBI, in turn, puts the probability of a systemic crisis over the next 12 months at just 0.5% — well below the historical average of 11% — and considers the Brazilian stock market attractive at current levels.

Business confidence, however, fell 1.4 points in July, to 91.3 points, the sharpest drop since August 2025, according to FGV. The number of bankruptcies rose 2.42% year-on-year, and judicial reorganizations grew 6.2% in the first half — with one revealing data point: since 2023, the share of micro and small businesses resorting to the mechanism has more than doubled, while that of mid-sized companies grew 31%, exposing the asymmetric cost of high interest rates on businesses with less access to capital.

Amid this challenging domestic scenario, the pressure coming from abroad is segmented in unorthodox fashion. The 12.5% U.S. surcharge on Brazilian products, justified by the Trump administration on the basis of forced labor allegations, reveals a glaring inconsistency: sectors exempt from the levy actually lead, within Brazil, the rescues of workers in conditions analogous to slavery, according to a Folha de S.Paulo investigation. The reading among analysts and the Brazilian government is that the humanitarian argument serves as cover for a protectionist measure of a different nature. The geographic impact is uneven: Ceará, Espírito Santo, and Santa Catarina have up to 42% of their total exports to the U.S. affected by the tariffs. Beachwear label Adriana Degreas, which relies on the U.S. market for 45% of its exports, is studying moving part of its production to Colombia — a move that illustrates how Brazilian companies are beginning to reconfigure supply chains to work around the new tariff order.

Ironically, it is the Chinese themselves who now exert the most visible deflationary pressure on the Brazilian economy. New car prices are falling for the first time in years — by an average of 3.5% in the price effectively paid by consumers between June 2025 and June 2026, according to Bright Consulting — driven by the aggressive entry of brands such as BYD and GWM in segments previously dominated by traditional automakers. The strategy, described by specialists as a market-capture phase sustained by scale and vertical integration, is already forcing Volkswagen, Renault, and Mitsubishi to revise their price lists. In the same vein, imports of Chinese electric bicycles nearly tripled in the first half of the year, with Brazil jumping to become the world's third-largest importer in the category.

In the energy sector, two divergent signals deserve attention. Brazil's first battery storage auction registered 6,091 enrolled projects, totaling 296.81 gigawatts — an all-time participation record for tenders in the electricity sector, according to EPE, evidencing private capital's appetite for clean energy infrastructure. In the same sector, however, Aneel's technical staff rejected Enel's final allegations in the proceeding that may culminate in the revocation of its distribution concession in Greater São Paulo — a decision that keeps alive a threat of contractual rupture without recent precedent in the sector. The case now moves to the agency's board, whose final verdict will determine whether the country's largest electricity distribution market will undergo a forced operator transition.

On the agenda for the coming sessions, attention is split between the Copom decision — whose meeting approaches in an environment of falling rate projections for the first time in months — and Brazilian industrial production data along with the U.S. JOLTS report, which may calibrate expectations both around the easing cycle and around the pace of global activity. On the corporate front, the unfolding of the Raízen case and the ruling on Enel's São Paulo concession remain the variables with the greatest potential to move the domestic market.

**Raízen (B3: RAIZ4)** — The São Paulo State Court of Justice approved the largest