What matters to companies is the general cost of debt, says director of Moody’s

The rise of private credit is boosting the presence of in Brazil. Given the elevation in the basic interest rate, responsible for increasing the fear of companies and investors regarding the cost of debt, the risk agency has expanded its local rating operation.

In 2021, the agency installed its office in Brazil, one of the only ones in Latin America, with the idea of ​​strengthening rating analysis to meet the demand of private investors and those with exclusive allocation in Brazilian companies. “We realized that there was a need for a specific rating methodology so that [esses investidores] They can evaluate the solvency of Brazilian companies compared to each other, ”said Moody’s Global CFO, Noémie Heuland, in an interview with Infomoney.

Local business ratings have been one of the main growing keys for Moody’s, traditionally recognized for sovereign debt ratings and titles outside the United States. In Latin America, the company already covers 13 markets that represent 80% of GDP.

In a report published in October 2024, Moody’s. However, the document highlighted that the cost of debt followed as the central risk point, given the elevation of the basic interest rate in Brazil. “Thinking about the conversations I have with investors, who want to understand our classification business, what really matters to them and companies is the overall cost of debt,” says Heuland.

According to Heuland, it is still early to understand the impacts of the worldwide trade war on the financial management of companies. In recent months, US President Donald Trump has been high rates for certain economic sectors, which has caused reciprocal reactions from other economies.

The most uncertain scenario increases the demand for rating and analysis services produced by Moody’s. “Our role is to try to cross the noise and sit with our sender or industry experts to understand the impact of these credit -specific laws and regulations,” says Heuland.

Read the full interview below:

Infomoney: Interest rates in Brazil today are among the highest in the world. What is the influence of this scenario on the capital market and customers of Moody’s?

Noémie Heulland: We published our sovereign note about Brazil in October 2024. There are some expectations about GDP growth. We analyzed monetary policies as a whole, observed governance and institutions and had a positive perspective on Brazil in general, which reflects the possibility of stable growth for the region. It is an economy that still grows quite robustly. We obviously believe that if tax reform continues to advance, it will help in institutional credibility. One of the main risks we highlight in the general scenario is the cost of credit in general, not just Brazil, but thinking about the conversations I have with investors, who want to understand our rating business, what really matters to them and companies is the overall cost of debt.

If they can demonstrate and have a common reference that their company’s classification is higher than another in terms of their own governance, their own financial profile, their policies, their operations management, if you get a better classification because of all these factors, their capital cost over another player must be lower. This is the value of classifications. At least that’s what we see in more mature markets. This makes a very significant difference. We have some presentations that show how a Moody’s classification reduces the cost of capital of a debt over 20 years, for example.

IM: Do Moody’s operational decisions in Brazil undergo the evaluation of the sovereign rating of the country?

NH: There is no direct correlation between the sovereign credit assessment and what we decided to do through that country. This is what makes something unique: our analysts, especially in the sovereign area, but in any class of assets, have an independent and rigorous methodology to evaluate the solvency of a particular country, company, insurance, instrument, or whatever.

There may be a situation where there is a country that in which perspectives are not very good in general, but the broadcasters and the market investment community need even more from us, because they want to understand and separate what is really happening and how corporate credit are being affected and vice versa.

If you look at the US now, there are many executive orders, many new things that are being introduced by the change in administration. And our role is to really try to filter noise and sit with our sender or industry experts to understand the impact of these specific credit laws and regulations. In the absence of any other political noise or aspect, what really matters are these regulations and how they will affect the credit assessment of a specific item. Our items are in high demand because many people are wondering what all these things will mean.

IM: Regarding the United States, we are now going through a trade war, partly described in the scenario you mentioned. What is Moody’s assessment of its impact on the financial management of companies and countries.

NH: As I said, we are trying to filter the noise. Again, many things are happening now. What will really affect credit assessment? And again, by sector. We note, for example, that the automotive sector may be more affected by these rates than other sectors. Therefore, we have specific industry and industry analyzes on what the impact of tariffs will be for these specific actors. This may be different for importers and exporters. So we need to be very specific when using our methodology. What is really happening in the credit assessment of that specific company because of these regulations? Therefore, it is not a unique solution for everyone. Tariffs are bad or rates are good. This is really based on methodology and sectors.

The other thing I would say to the analysis business, which I think is important, is that customers also want to understand the risk in their supply chain. What if there are some specific restrictions in certain parts of the world, how does it affect the entire supply chain? We have tools in our analysis industry to be able to evaluate these data based on data and models that our customers can also use to plan, react and evolve their strategy or investments based on these new tariff regulations.

IM: Has companies been looking for more alternatives in the Brazilian capital market?

NH: What we do is ensure that we understand where capital flows come from. Initially, we have teams specialized by type of asset class, such as corporate finance, financial institutions, structured finances, including funds, asset management companies, etc. But we also want to ensure that these different teams and analysts, who specialize in their sectors, talk to each other to understand where the flows come from and how market demands are evolving and what the market needs is.

In the US, and Brazil is probably going a little in the same direction, we set up a private credit team to work with large private equity firms and banks to understand now how the debanking And the banks that originate loans and sell them as structured instruments were affecting the capital flow and what investors demanded from our credit agency.

We tried, we talked to our broadcasters, obviously, but equally important is to have a very strong connection with the different market participants to understand the different dynamics and the needs and where the flow of money is going, so that we can respond with the correct methodology. Obviously, we will not classify everything, all instruments and esoteric things. There are many things that we say we don’t want to classify because we don’t feel that we have proper analytical skills or we don’t think it’s something we should do.

IM: And what is the agency’s view for Brazil and Latin America in the coming years? How important is the region in terms of investments for Moody’s?

NH: When we look at our company rating business as a whole, Moody’s classifications usually have a high -term high digit growth in the long run. If you look from where this is coming from, first we have the debt. We classified US $ 33 trillion of debt in the total world. Then we have a little value that we incorporate into our price structure, because studies show that the value of a Moody’s classification allows you to significantly reduce your capital cost or financing. The complement to achieve high digits growth is what we call domestic markets, things like what we are doing at local Moody’s. We also have a presence in Africa and many emerging markets in Southeast Asia. It is a large component of the rating growth algorithm for the company as a whole. It’s not just Latin America, it’s also other domestic markets, but Latin America is where we started this journey, so it’s a large area of ​​attention to us.

Historically, we classify public debts, government bonds, but now, with the emergence of private credit, we are also seeking to play a significant role with large private credit investors who also want transparency and common language to evaluate a company’s solvency, and then sustainable finance is another example. The strategy is really to help local investors and savers who want to invest their capital in companies in the country get a transparent framework, applying what we do in public debt to local markets so that people have a reference. Insurance companies, pension funds, now that people in Brazil are starting to want to put a little more private capital in companies. They have a reference they can consult to see how credit is valued by comparison another option.