(Bloomberg) -- Rapidly rising borrowing costs pose more of a threat to companies in Latin America than anywhere else in emerging markets, raising concern that defaults in the region are about to rise, according to S&P Global Ratings.

Credit conditions are tightening more quickly now in Latin America than they were at the height of the 2008 financial crisis, analysts led by Gregoire Rycx wrote in a report. That is expected to put companies under pressure through the end of next year. 

“Latin American countries are enduring the most severe tightening of financial conditions seen in recent history,” the analysts wrote. 

Defaults may pick up quickly in Brazil as companies there rely on floating-rate debt, which becomes more expensive to service as interest rates rise. Policy makers have raised the key Selic rate by 11.75 percentage points in the last two years. As a result, the average interest rate businesses are paying rose to 7.9% last year from 6.9% in 2021, and it’s already weighing on earnings and credit metrics, S&P said.  

While there are only “faint signs” of stress in the region’s largest economy so far, S&P is joining the chorus of investors and analysts predicting an incipient credit crunch in the country. The default of century-old retailer Americanas has sent shockwaves through domestic credit markets, with lenders growing more selective and new issuance freezing up. 

Companies in Chile and Colombia — countries that long had stable and relatively low interest-rate environments — face the sharpest immediate risks, according to S&P. Central banks there have raised rates to 11.25% and 12.75%, respectively, making it more difficult for businesses to manage their debt loads. 

“The real concern is that credit stress could emerge if issuers are unable to roll over their debt,” the analysts wrote. “In such cases, defaults become inevitable as capital structures adjust to the new elevated financing costs.” 

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