Americanas: when debt changes its name, the fear does not change owners

Credit is a single question — what happens if you do not pay? — and Americanas spent years hiding the question instead of answering it.

A material fact notice of a few paragraphs has just become worth more than any finance course: R$ 20 billion in "accounting inconsistencies." The CEO who arrived to clean the house lasted nine days in the job and left through the front door, pointing at the basement. The stock lost three quarters of its value in one session. Days later, the bankruptcy protection filing declared R$ 43 billion in debt — at a century-old retailer, listed, audited by one of the four largest firms in the world, with the most celebrated reference shareholders of Brazilian capitalism.

The whole country is debating guilt. Guilt is a matter for courts, and courts take time. I prefer to discuss the mechanism, because the mechanism is not tied to one company. It is, at this very moment, inside other balance sheets.

The technical name is supplier finance — "risco sacado." The design is simple. The supplier delivers the merchandise and wants to be paid upfront. The bank pays the supplier, at a discount. The retailer now owes the bank, with interest and tenor. So far, nothing wrong: prepaying suppliers is one of the oldest and most legitimate tools in commerce.

The problem is not the instrument. It is the name.

On the balance sheet, that bank debt remained dressed as "suppliers." The interest it cost disappeared into the cost of goods sold. Financial debt became an operating account. The liability changed clothes and sat in the living room as if it were family.

I wrote in October 2008, with the world frozen, that credit, reduced to its essence, is a single question: what happens if you do not pay? Everything that exists in credit — collateral, covenant, tenor, escrow — is a way of answering that question before it is asked.

Americanas did the opposite. It did not answer the question. It hid the question.

It removed the fear from where it should live, the financial debt line, and spread it where nobody looks, the suppliers line. And hidden fear does not disappear. It compounds. Debt that changes its name does not change its nature. It changes its date.

Who should have seen it? Everyone. No one. The auditor looked at the line item and the line item had backing. The board looked at the results and the results had margin. Each bank saw its own slice of the operation and none saw the sum. The entire system accepted, for years, a design in which the central question of credit had no address on the balance sheet.

I have spent my life reading balance sheets from the lender's side, and the trade teaches a specific suspicion: fear the large number less and the soft name more. "Suppliers" growing faster than inventory is debt under a pseudonym. Margin improving while the sector suffers is interest living on the wrong line. The balance sheet rarely lies with numbers. It lies with names.

What would I do with this, in January 2023?

I would not buy the dip. Stock in a company under bankruptcy protection is not stock; it is a ticket in a lottery administered by lawyers, where the creditor picks the prize before the shareholder. The question "what could it be worth if it survives?" matters less than the other one: "who decides what is left?" And whoever decides is never the minority shareholder.

I would look at the creditor banks with cold eyes. Big provision, ugly headline, and then the usual discovery: for a large bank, a shipwreck of this size is a bad quarter, not a destiny. The market's fear tends to exaggerate the damage to those who have a cushion.

And I would look, above all, at every leveraged retailer. The Americanas lesson will be charged to companies that have never set foot in Rio de Janeiro. From now on, the market will ask the question accounting did not ask — and it will ask everyone. How much of "suppliers" is supplier? How much is a bank in costume? The repricing will not spare innocents wearing the same outfit.

The bigger lesson, though, is not for the investor. It is for the entrepreneur who finances his own operation.

Good structure answers the creditor's fear in broad daylight: registered collateral, visible flow, tenor matched to cash. It costs less precisely because it hides nothing. The design that makes debt cheaper is the same one that makes lying impossible — transparency and price move in the same direction. When the design becomes a secret, today's discount becomes tomorrow's panic, and the entire price shows up all at once, in a material fact notice of a few paragraphs.

Americanas did not break in January. It broke in the years when the balance sheet stopped answering the question. In January, the answer merely came due.

There is no such thing as debt without an answer. There is only a postponed answer. And a postponed answer, in credit, has a name: interest.

I would not bet on the end of supplier finance. The tool is too good to die from misuse.

I would bet on the end of its anonymity.

Leo Bentier