(Bloomberg) -- Brazilian health-care companies are taking steps to lower their debt burdens after a wave of ferocious dealmaking, combined with increasing operating costs and higher interest rates left their finances vulnerable. 

Diagnosticos da America SA, the country’s largest medical diagnostics company, is considering options to raise cash that include a combination of asset sales, new partners, a capital injection from its controlling holder and re-negotiating obligations, a person familiar with the matter said. Elfa Medicamentos, a drug retailer backed by Patria Investimentos Ltd., is looking to sell non-core assets to cut leverage, according to another person. 

Health-care firms took advantage of historically low rates during the pandemic to fund mergers and acquisitions. But now higher costs, including for debt servicing — many raised floating-rate debt — are pushing firms to consolidate or renegotiate obligations. A tougher approach from insurers is also adding pressure. 

“We’re seeing the Brazil effect pressure cash flows — higher rates are really bruising these companies,” said Tatiana Thomaz, a director at Fitch Ratings. “There is resilient demand for the sector, but there are short-term challenges in the horizon.” 

Dasa’s preference would be to sell select assets or get more capital from its backer, the Bueno family, the person familiar said, asking not to be named discussing a private matter. The company in April raised just under 1.7 billion reais ($331 million) with a share offering, but isn’t considering another one at this point, the person said. Dasa declined to comment. 

Elfa, which is privately-owned, is working to improve cash generation, “targeting healthy growth and leverage reduction,” according to an earnings statement released Monday. It reported a year-over-year decline in net revenue and a net loss of 54.3 million reais for the quarter. 

“We continue to direct efforts to re-profile 2025 maturities together with our financial partners,” according to the statement. 

The company engaged advisory firm Laplace Finanças last year to reschedule debt payments. That work was completed in October, a person familiar with the matter said, adding that Patria injected 873 million reais ($170 million) into the business in 2023. Elfa declined to comment further, while Patria didn’t respond to a request for comment. 

Earnings hit

Earnings season has further fanned concerns with the sector. CM Hospitalar, known as Viveo, last week saw its stock downgraded by seven analysts after debt levels soared to 2.54 billion reais in the first quarter. Shares of Oncoclinicas do Brasil Servicos Medicos SA, gained after slumping as much as 18% on Tuesday, when the cancer-care provider said high debts were pressuring its cash flow. Cash burn was about 720 million reais, well above Goldman’s “hefty” estimate of around 430 million reais. The stock is down 11% this week.

“Cash consumption was worse than expected and increases leverage concerns on the thesis,” analysts Gustavo Miele and Emerson Vieira wrote in a note. Goldman owns a 45% stake in the business. 

Dasa’s shares also slid before an earnings report later on Wednesday. The company’s stock has slumped 66% this year, causing its market capitalization to plunge to 2.5 billion reais. Viveo’s market value has fallen by 88% since an all-time high in August 2021, a few weeks after it went public. 

Both firms are backed by the Bueno family, who provided Dasa with capital in 2023.

Read more: Viveo Shares Extend Record Weekly Slump on Downgrades

Local bond spreads in the sector have also widened. Dasa’s local notes due in 2031 are now yielding around 8% over a benchmark — around 600 basis points more than when the bonds were sold in 2021, according to data compiled by Bloomberg. 

In an emailed response to questions, Viveo said it’s worked to extend debt maturities and lower debt costs, adding that it has a “robust” cash position and that no pressing maturities in the short-term. Oncoclinicas didn’t respond to a request for comment. 


Unlike in the US, where many companies locked in cheap funding when rates were low, several Brazilian firms are now grappling from floating rates common in local debt. While the central bank has been lowering borrowing costs, the benchmark Selic rate is still at 10.5%.

Health insurers, also being squeezed by high rates and a jump in demand following a pandemic lull, are adding to sector woes. They’re taking on average 30 days longer to pay for procedures, asset manager Polo Capital said in a March report. The scrutiny to deny payment has also increased, according to brokerage XP Inc. 

“Payment deadlines are being extended, and that’s pressuring working capital” for health-care providers, said Rafael Junqueira de Barros, an analyst at XP. 

(Updates pricing starting in 9th paragraph.)

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