Raízen: the reasons behind the out-of-court restructuring

More than a legal event, the case reveals a financial deterioration driven by the mismatch between investment, debt, and cash generation.

Eduardo Rittes (Senior Member)

Raízen is one of Brazil's largest energy and fuel companies, operating in sugar, ethanol, bioenergy, and fuel distribution. Created from the combination of Cosan and Shell assets, the company built a large-scale operation, with dozens of mills, thousands of business partners, and net revenue of R$ 255.3 billion in the 2024/2025 harvest season. It is precisely due to this scale that its out-of-court restructuring filing in March 2026 had a significant impact, as the company sought to reorganize approximately R$ 65.1 billion in unsecured financial debt, in the largest process of its kind ever recorded in the country.

In essence, out-of-court restructuring is a legal instrument that allows a company to negotiate with a specific group of creditors and subsequently submit the agreement for judicial approval. Unlike traditional bankruptcy protection, it does not need to encompass all of the company's obligations. In Raízen's case, the scope was explicitly financial — the company stated that customers, suppliers, dealers, business partners, and other operational obligations would remain outside the process and continue to be honored as usual. The plan was thus structured with the main unsecured financial creditors and initially had the adherence of over 47% of the subject debt, with a 90-day window to reach the percentage required for approval, which would be half of the credits covered by the plan.

The central question, however, is why a company of this size reached this point. The most compelling explanation lies not in a single isolated mistake, but in the combination of a capital-intensive strategy with a simultaneous deterioration on multiple fronts. According to coverage of the case, Raízen accumulated billions in losses, saw its net debt rise by approximately 60% over the last 12 months, and underwent rating downgrades amid rising indebtedness and restructuring expectations. At the same time, adverse weather conditions and sugarcane field fires reduced agricultural output and pressured cash flow. The result was a deterioration of the capital structure at precisely the moment when the company needed more breathing room to sustain its operations and meet its financial obligations.

Net Debt (R$ million) and Leverage (Source: Raízen IR)

Note: Raízen follows the harvest year, meaning its fiscal year runs from April 1st of each year through March 31st of the following year.

Furthermore, the deterioration of the market's risk perception of the company further worsened its financial situation. With the credit deterioration, Raízen began facing a more restrictive financing environment, with less flexibility to manage its liabilities and less room to navigate a period of operational pressure. In this context, restructuring ceased to be merely an alternative and became a more concrete necessity to reorganize the capital structure.

It would be simplistic to say that Raízen filed for out-of-court restructuring simply because it "took on too much debt." Asset-intensive companies frequently operate with significant leverage, and this is not, in itself, a mistake. The problem arises when the level of debt is no longer compatible with the predictability of cash generation. In Raízen's case, the combination of high investments, operating losses, an agricultural shock, and credit deterioration appears to have produced precisely this mismatch. The liabilities remained large, but the capacity to absorb volatility diminished.

In this regard, the case also invites discussion of what could have been done to prevent this situation. The first measure would have been a more conservative discipline in capital allocation. In companies with high exposure to cycles, weather, and commodities, expanding too aggressively at once may seem rational in a favorable environment, but becomes dangerous when conditions change. A more selective strategy, prioritizing projects with faster returns and lower cash requirements, would have reduced the company's vulnerability to external shocks.

The second measure would have been earlier action on the company's capital structure. Before the crisis worsened, the company could have reduced its reliance on debt through the sale of less strategic assets, the injection of new capital from shareholders, and the renegotiation of its financial obligations' maturities. This is especially relevant because the restructuring plan now disclosed includes precisely these measures, that is, instruments that could have been activated earlier, potentially under more favorable conditions.

The third front would have been a more robust liquidity buffer to weather operational shocks. When a company depends on large-scale agricultural production, events such as adverse weather and fires cease to be peripheral risks and become a central part of financial management. A company may not control the weather, but it must structure its operations and balance sheet assuming that shocks will occur at some point.

Furthermore, the choice of out-of-court restructuring is consistent with the nature of Raízen's business, as it allows the renegotiation to be concentrated on the financial liabilities, seeking to preserve its operational chain. Although out-of-court restructuring is generally less broad and less disruptive than traditional bankruptcy protection, this does not mean its use is trivial. It remains, nonetheless, a significant signal of financial deterioration. The difference is that, in situations where the crisis can be concentrated among specific creditor groups, the out-of-court route allows for a reorganization attempt that is less damaging to operations.

In the end, the Raízen episode shows that scale, market leadership, and sectoral relevance do not make a company immune to financial decisions made at the wrong time, nor to the combination of operational shocks with a tight capital structure. Out-of-court restructuring emerges, in this context, not as a magic solution, but as an attempt to preserve the functioning of operations and redistribute the burden of indebtedness. The case is important because it reveals the significance of growing with a capital structure capable of surviving when conditions cease to be favorable, a point frequently overlooked during expansion cycles.