This report does not constitute a rating action.

Key Takeaways

• Brazilian infrastructure groups' growing cash generation and steady operating performance should help manage rising debt service costs as interest rates should remain at 14.75% until year-end.
• Amid high ongoing investments, rated companies will allocate a significant portion of their cash flows to debt payments, keeping credit metrics pressured, but we don't expect an impact to ratings.
• Electric utilities will take the greatest hit because of their high exposure to floating interbank deposit rates and limited capital expenditure flexibility, while toll roads and water utilities will be better positioned to postpone committed investments.

Growing cash generation and steady operating performance will enable Brazilian infrastructure groups to manage increasing debt service costs as interest rates rise. In response to inflationary pressures, Brazil's central bank has been tightening its monetary policy more aggressively than anticipated. S&P Global Ratings economists now expect Brazil's policy rate to end 2025 at 14.75% (see "Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth," May 1, 2025). In this scenario, infrastructure groups will allocate a significant share of their cash flows to debt payments, given they generally carry a significant proportion of local floating-rate debt.

Despite the resulting impact to their credit metrics, we anticipate a limited impact on ratings. We expect these rated entities to show resilient cash flows, based on their mature operations, relatively inelastic demand, and inflation-linked revenue. In addition, we expect assets under ramp-up to propel EBITDA growth, following the conclusion of investments executed in the past two years.

Electric Utilities Will Take The Biggest Hit

Electric utilities and environmental services are the most exposed to interbank deposit rates. Electric utilities also have limited flexibility to delay or dilute their robust capital expenditure (capex) plans. Still, we don't expect an impact to ratings for this group, given inelastic demand and inflation-linked revenue should keep cash flows resilient. Additionally, these companies operate with robust cash reserves, mitigating liquidity risks.

Rated water utilities and transportation infrastructure groups, in contrast, show higher exposure to inflation-linked debt, which makes them less vulnerable to cash flow mismatches because most of their revenue is also adjusted by inflation. Water utilities have issued Brazilian real (R$) 43 billion of incentivized debentures since 2019, and in the first quarter of 2025, the transportation infrastructure segment accounted for half of the R$ 59 billion new incentivized issuances in the market, all linked to inflation.

Meanwhile, most rated project finance transactions have revenue indices aligned to their debt. That provides some protection from deteriorating macroeconomic conditions. Nevertheless, we recently downgraded Manaus Transmissora de Energia S.A. because we projected significant deterioration of its debt service coverage ratio in the next two years, due to the debt's exposure to the floating interbank deposit rate, along with mandatory capex.

Investment Is Accelerating

The interest rate hikes come amid accelerated investment in the sector. In 2024, capital deployed for infrastructure in Brazil totaled about R$ 260 billion, and we expect this trend to continue over the coming years, as ongoing investments are unlikely to halt, and some entities face mandatory capex according to their concession contracts.

While the higher leverage from increased interest rates could limit appetite from commercial banks and capital markets, Banco Nacional de Desenvolvimento Economico e Social has approved a budget of R$ 80 billion to finance infrastructure assets in 2025. Under these circumstances, infrastructure entities' credit metrics are likely to remain pressured, with average funds from operations (FFO) to debt of 10%-15% in the next two years. However, we expect rated entities to gradually reduce leverage as interest rates ease and executed investments bring higher cash generation.

Electricity distributors

Electricity distribution companies will face stricter standards to renew concessions coming due (see "Smooth Renewals Will Support Brazilian Power Distributors' Credit Quality," April 7, 2025), so we expect the largest integrated electric groups that we rate in Brazil (CPFL, Energisa, Equatorial, Neoenergia, and Enel Americas’ subsidiaries in the country) to invest roughly R$90 billion in power distribution in 2025-2027, up about 15% compared with 2022-2024.

Considering the limited ability to postpone these works, we project electric utilities' credit metrics will be the most affected by the interest rate hike. Still, we don't expect a ratings impact on these companies: The ratings on some, such as Energisa, are capped by the sovereign credit rating, while others, such as CPFL and Neoenergia, benefit from parent support.

Toll roads

Toll roads, including large transportation groups like Motiva (formerly CCR) and Ecorodovias and single-asset projects such as EPR Sul de Minas, are also executing investments contracted under concessions awarded in the past five years. Moreover, the pipeline of upcoming investments in federal and state road concessions totals R$200 billion, scheduled to be auctioned until the end of this year.

However, we believe flexibility exists to postpone the execution of these investments, given most new concession contracts do not impose annual capex requirements. In addition, we expect these entities to gradually reduce leverage as the new assets begin to contribute to cash flow generation.

Water utilities

We anticipate a significant increase in indebtedness for rated water utilities. In the case of Iguá and Aegea, the main factor will be the capex to ramp up newly added concessions and other less mature operations. Meanwhile, Sabesp has an ongoing R$70 billion capex plan to anticipate universalization by 2029. While we expect its financial metrics to deteriorate, we do not anticipate an impact to the ratings because the company currently has leverage, measured by adjusted debt to EBITDA, of 2.0x-2.5x.

Environmental services

The 2020 update to Brazil's sanitation regulatory framework promoted growth in the environmental services industry, in addition to increasing access to advantageous financing lines for these investments. As such, we do not expect higher rates to impair the credit metrics of Orizon and Solví. In the case of Ambipar, we expect the company to accommodate higher interest expenses thanks to a drop in investments and acquisitions and a focus on optimizing its existing asset base, which should strengthen cash flow.

Other sectors

We also rate infrastructure companies that have already concluded mandatory investments and may execute their expansion programs under their discretion, such as bulk and container terminals Empresa Brasileira de Terminais e Armazens Gerais and Terminal de Conteineres de Paranagua. Despite Santos Brasil’s recent increase in leverage and its ongoing anticipation of its 2031 mandatory capex, we still project debt to EBITDA below 3.5x and FFO to debt above 20%, aligned with our rating.

In addition, despite lower GDP growth expectations related to higher U.S. tariffs, we don’t expect rated ports' volumes to decline, given Brazil's commodity-focused exports to Asia.

Maturities Remain Manageable

Maturities should remain manageable for most rated companies. We expect 85% of the infrastructure entities we rate to maintain a ratio of sources over uses above 1.2x in the next 12 months, after many companies anticipated their refinancing needs in 2024 and improved their flexibility to postpone new issuances or access new bank debt in case market conditions deteriorated.

Some groups have also announced their plans to divest from nonstrategic businesses, which could boost their liquidity positions. This is the case with Equatorial's recent sale of the transmission segment and Motiva's intention to attract new investors to its airports segment.

Tariffs Could Have An Indirect Impact

The indirect impact from higher U.S. tariffs varies across sectors. While the new tariffs raise downside risks to S&P Global Ratings' macroeconomic baseline, we believe the consequence to Brazilian infrastructure assets will be limited and indirect--mostly related to lower GDP growth, given Brazil is a relatively closed economy but a large exporter of commodities goods.

The credit effects of an eventual decline in demand resulting from trade policies would not be uniform across the entities that we rate, and we would expect some roads and ports to be more sensitive to a decline in global trade. Additionally, we would expect the few entities that we rate that have larger refinancing needs, slim liquidity, and high exposure to floating rates to be more exposed to a deterioration of global economic conditions.

S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).

Related Research

• Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth, May 1, 2025

Primary Contacts:	Marcelo Schwarz, CFA, Sao Paulo 55-11-3039-9782; marcelo.schwarz@spglobal.com
	Carolina Zweig, Sao Paulo 55-11-3818-4170; carolina.zweig@spglobal.com
Secondary Contacts:	Julyana Yokota, Sao Paulo 55-11-3039-9731; julyana.yokota@spglobal.com
	Candela Macchi, Buenos Aires 54-11-4891-2110; candela.macchi@spglobal.com