Brazil notes linked to unpaid state taxes face risks, Fitch says

Guillermo Parra-Bernal – Reuters, 7/22/2015

Holders of Brazilian securities backed by unpaid state taxes face growing repayment risks ranging from conflicting debt renegotiation plans to over-optimistic expectations of repayment, Fitch Ratings said in a Wednesday report.

The special purpose vehicles that some Brazilian states set up to sell the so-called “divida ativa” securities could be saddled with smaller-than-expected recovery rates and potential changes in programs to incentivize the renegotiation of taxes in arrears, analysts led by Paulo Fugulin said in the report.

The report highlights the growing risk stemming from efforts by federal and state governments to raise additional revenues from tax renegotiations. Earlier in the day, the federal government launched a plan to lure as many as 29,000 taxpayers into settling some of their obligations through tax credits.

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