How to prioritize renegotiating your company's debt as interest rates fall
Not every debt benefits equally when rates fall. Learn how to weigh the index, term and exit cost to prioritize renegotiating your company's liabilities.
When Copom (the Central Bank of Brazil’s Monetary Policy Committee) starts a rate-cutting cycle, many companies’ first reaction is to look at their liabilities and think about renegotiating. The logic seems obvious: if the cost of money is falling, it makes sense to seek better terms on existing debt. The reasoning is sound, but the execution takes judgment. Renegotiating everything at once, without distinguishing between contracts, can trigger exit costs that wipe out the expected savings, or swap a transparent debt for one with worse terms overall.
The practical question for the finance team becomes: where to start? The answer depends on three variables that define the profile of each liability: the index, the term and the exit cost.
The index determines who benefits first
The most important distinction when assessing debt renegotiation in a falling-rate cycle is the type of index the contract uses.
Floating-rate debt, tied to the CDI (Brazil’s interbank deposit rate) or a percentage of it, adjusts automatically as rates fall. The cost of these facilities goes down without the company having to renegotiate anything. If the company carries a working capital line indexed to CDI + spread, for example, the CDI component already shrinks with every Copom cut. The action needed here is different: assess whether the contracted spread still reflects current market conditions. Spreads negotiated during high-rate windows often carry risk premiums that lose their justification as the financial environment improves.
Fixed-rate debt, on the other hand, does not benefit from the decline. The rate was locked in when the contract was signed and stays the same until maturity, regardless of what Copom decides. A company that took out fixed-rate credit at 16% a year at the peak of the tightening cycle keeps paying 16%, even if the CDI is already several points lower. These are the contracts that deserve priority in renegotiation, because the gap between the contracted cost and the market cost tends to widen with each new cut.
The general rule: prioritize renegotiating contracts whose cost is locked in above market and that do not adjust on their own.
Short or long term: which to tackle first
The maturity date determines how urgent each renegotiation is and how much it could save.
Short-term liabilities (maturing in the next 6 to 12 months) offer the most immediate window for action. When they mature, the company can simply replace them with new facilities at lower rates, with no need for a formal renegotiation. The work here is preparation: map maturities, research terms and have the paperwork ready to move fast when the window opens. Companies that wait until the week a loan matures to look for new terms lose negotiating power.
Long-term fixed-rate liabilities weigh most heavily on the balance sheet during a falling-rate cycle, because the high cost is locked in for years. They are the natural candidates for active renegotiation. But this is precisely where exit costs tend to be highest, which brings us to the third variable.
Read also: The cost of money has changed: what it means for companies that need to grow
Exit cost: the number that decides whether renegotiation is worth it
Renegotiating a credit contract is not free. Depending on the facility, the company may face prepayment penalties, early settlement fees, registration costs for new collateral, or simply the requirement to pay off the full outstanding balance before taking out the new line. Resolução CMN nº 4.881/2020 (a National Monetary Council rule) requires disclosure of the Custo Efetivo Total (CET, the all-in effective cost of credit) for micro and small businesses, but the principle applies to companies of any size: the CET of the new facility, plus the exit cost of the old one, must be lower than the cost of keeping the original contract until maturity.
That math does not always favor renegotiation. As a practical example, a fixed-rate contract at 16% maturing in 18 months may look expensive against today’s CDI, but if the prepayment penalty equals six months of interest, the net savings may be marginal or even negative. The essential exercise before any renegotiation is to compare the full cash flows of both alternatives: keeping the contract to the end versus settling early and taking out a new facility.
Two more points deserve attention in this analysis. The grace period offered in many renegotiations suspends the obligation to pay installments, but not the accrual of interest, which means the outstanding balance keeps growing during the grace period. And extending the term, presented as relief for monthly cash flow, can significantly increase the total cost of the facility. A smaller installment does not always mean cheaper debt.
When not to renegotiate
Not every debt needs to be renegotiated in a falling-rate cycle. Here are three situations where keeping the contract may be the better decision:
Floating-rate debt with competitive spreads is already capturing the benefit automatically. Renegotiating could mean trading a good spread for worse terms disguised by a lower rate.
Contracts maturing very soon (30 to 90 days) rarely justify the effort and cost of renegotiation. In that case, it is more efficient to wait for maturity and take out a new facility.
Facilities that require additional collateral on renegotiation can compromise the company’s financial flexibility. Swapping unsecured debt for cheaper debt backed by real estate or pledged receivables limits room to maneuver in future deals.
A well-prepared financial structure strengthens your negotiating power
The quality of a renegotiation depends directly on how much visibility the company has into its own numbers. Those who come to the negotiating table with their maturity schedule mapped, the CET of each contract calculated and their index profile organized negotiate on better terms than those operating in the dark.
That organization starts with day-to-day financial infrastructure: real-time reconciliation, centralized visibility into accounts and transactions, and traceable operations. Companies that already run integrated financial processes can pull this information quickly. Companies that depend on manually consolidating account statements and spreadsheets take weeks to put together the same diagnosis, and in a rate-cutting cycle, weeks mean market conditions that have already changed.
Trio offers financial infrastructure for companies that need control over and visibility into their operations, with a corporate account, simpler reconciliation and centralized management of multiple accounts and entities. For anyone reviewing their liability profile, getting the house in order is the first step.
