The largest default in Brazilian history

The challenge 

The domino effect of default 

Brazil's largest retail chain, Lojas Americanas, faced an unprecedented crisis when accounting irregularities were discovered, revealing a debt of $4.8 billion. This led to its bankruptcy. The financial impact of this crisis was enormous. About 70% of the debt was financial, but commercial credit was another large item that threatened to trigger a domino effect of defaults. Large suppliers, key multinationals in sectors such as electronics, telephony, and food, were owed $740 million. Half of this debt was backed by credit insurers. Additionally, hundreds of small businesses had accumulated debt of more than $33 million, which was crucial to their survival. 

The solution 

Differentiated treatment for their policyholders

Credit insurers played a leading role in defending their policyholders' interests. They compensated them for nearly $370 million, the largest claim in Brazilian market history, equivalent to two years of premiums. They also actively participated in the judicial recovery plan, achieving differentiated treatment for their policyholders. After multiple negotiations to save the retail chain, the main shareholders committed to recapitalising the company, and the credit insurers to maintaining their coverage to ensure the company's viability. 

Atradius played a significant role in finding this solution. Insured suppliers who continued to supply goods under the renewed credit insurance coverage became privileged creditors. They received between 70% and 100% of the amounts owed in a single payment, with the remainder paid over five years. In contrast, uninsured creditors accepted a 50% write-off, recovering only half in 48 instalments with no obligation to continue as suppliers to the store. 

The outcomes 

Rapid responses to large-scale problems

The Lojas Americanas case provides key lessons for the future. The first is that independent audits do not always guarantee the reliability of accounting information. The training of analysts and the use of new technologies are key to risk assessment. The second is that, rather than a policy, credit insurance is a protection and growth strategy capable of providing rapid responses to complex and large-scale problems. 

In this case, coordinated action by insurers made it possible to treat insured companies differently as debtors and provide enough confidence to save Brazil's largest retail chain from closure. All this was possible thanks to credit insurance. What could have been one of Brazil's biggest bankruptcies was transformed, largely thanks to the decisive and coordinated action of credit insurers, into a success story that the Panamerican Surety Association has elevated to case study status. There is still much to be done in Latin America. The challenge is clear: to consolidate trade credit insurance in more markets. 

How can we help protect your business?

To explore more on how these insights can strengthen your own credit risk strategy, get in touch with us to see how we can help you stay ahead.