OREANDA-NEWS. December 16, 2015. Fitch Ratings has published a new report on the 2016 outlook for Brazilian Corporates.

Brazilian issuers are expected to face an operating cash flow crisis in 2016, according to Debora Jalles, a Director at Fitch Ratings. Falling revenues combined with higher operational and financial costs will heavily shrink cash flow from operations.

Political turmoil remains a negative headwind. As a result, Fitch Ratings does not envisage material improvement in 2016. Liquidity, which has been a bright spot for Brazilian issuers, is deteriorating and will elevate refinancing risk.

Downgrades are projected to outpace upgrades by a 10-to-1 ratio in Brazil during 2016. This ratio was 3.6-to-1 for the YTD through Dec. 9, 2015, compared with 2.5-to-1 in 2014 and
0.4-to-1 in the 2004 - 2013 period.

Leverage for Brazilian Corporates is generally high within rating categories, and the lower operating cash flow generation will drive a further increase. Median net leverage was 3.5x at June 30, 2015, compared with 3.6x in 2014 and an average of 3.0x in 2010 - 2013.