Tupy ratings affirmed at BB- as Fitch sees leverage easing through 2027

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Tupy ratings affirmed, 2027 outlook

Highlights

Tupy S.A.'s BB- rating and USD375 million senior unsecured notes due 2031 affirmed by Fitch, outlook stable amid anticipated leverage recovery through 2027.
Fitch forecasts EBITDA net leverage peaking at 4.6x in 2025, improving to around 3x by end-2026 and below 3.5x negative rating sensitivity threshold.
Fitch projects EBITDA above BRL650 million and cash flow from operations over BRL500 million in 2026, covering BRL420 million capex despite dividend and capex restrictions from covenant waiver.

Recovery path supports rating stability

As reported by Fitch Ratings, Tupy S.A.'s Long-Term Foreign and Local Currency Issuer Default Ratings remain at BB-, while its Long-Term National Scale Rating stays at AA(bra). Fitch also affirmed Tupy Netherlands Finance B.V.'s USD375 million senior unsecured notes due 2031 at BB-, with the outlook kept stable.

The rating action is based on Tupy's position as a Tier-1 supplier of high value-added components and on expectations that cash flow generation and leverage continue to recover through 2026 and 2027. Fitch says EBITDA net leverage is expected to improve to around 3x by year-end 2026, after reaching 4.6x in 2025, helped by higher volumes and cost-efficiency initiatives.

Fitch expects Tupy's leverage to have peaked in June 2026, with the capital structure strengthening as operating conditions improve. The agency says net leverage should move below the 3.5x negative rating sensitivity threshold by the end of 2026, while gross and net EBITDA leverage metrics are projected to recover to around 3.5x and 2x, respectively, by year-end 2027.

Cash flow outlook and sector risks

Operating cash flow is expected to strengthen in the second half of 2026, supported by a rebound in revenue as industry conditions recover in Brazil and North America and profitability margins improve. Fitch projects EBITDA, as it calculates the metric, to exceed BRL650 million in 2026, up from BRL482 million in 2025, while cash flow from operations should rise above BRL500 million, enough to cover BRL420 million in capex.

In December 2025, Tupy obtained a covenant waiver on its debentures leverage ratio, which limits dividend payments until net leverage reaches 2.75x and caps annual capex at BRL600 million through September 2027. Fitch says working capital needs are likely to rise with growth, leaving free cash flow slightly negative next year, although the agency still views the company's debt maturity profile as comfortable.

Risks to the outlook remain tied to persistently high interest rates or weaker business conditions that could slow deleveraging. Fitch also notes that Tupy's ratings are constrained by its moderate geographic diversification, smaller scale relative to global peers, and the highly competitive, cyclical nature of the auto industry, even as long-standing customer relationships and high switching costs support its market position.

Sovereign borrowing risks in a higher-rate regime were the focus of our earlier coverage, where we noted that prolonged geopolitical tensions and elevated fiscal spending are testing governments’ resilience as funding costs stay high. We also highlighted that emerging and frontier markets are especially exposed because heavier interest-service burdens and inflation-sensitive shocks can erode fiscal headroom and weigh on credit outlooks.

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