We maintain our Neutral recommendation on Telecom Argentina (B2/B/B-) and move to a bond-level Overweight on the TECOAR 8.500% 2036 notes, which remain our preferred expression within the curve. The issuer stance is a valuation decision rather than a cautious view on the direction of the credit. Telecom exits 2Q26 with stronger profitability, lower leverage, positive free cash flow and a maturity profile that allows us to assess liquidity as adequate rather than weak. The risk has shifted. Regulatory approval of the TMA acquisition is no longer the question. The question is how much of the operating improvement Telecom preserves after executing the required customer, spectrum and network divestitures. Against that backdrop, we think the credit continues to improve, but current valuations do not support a broad issuer-level Overweight.

The fundamental case is stronger than when we moved to Neutral. Profitability improved at both platforms in 2Q26, with broad cost discipline supporting earnings across the enlarged group. Net leverage declined to 1.48x and free cash flow remained positive despite elevated network investment. We also revise our liquidity assessment to adequate from weak. Headline short-term coverage remains below 1.0x, but Telecom faces only around US$330 million of principal maturities during the remainder of 2026 against US$645 million of cash and financial investments, close to 2.0x coverage of scheduled principal. Average debt life has lengthened to 4.8 years after another quarter of refinancing and prepayments. Liquidity remains the principal balance-sheet constraint, in our view, but it is no longer the central risk to the recommendation.

We would not treat the 2Q26 margin or free cash flow as a new run rate. Network investment remains elevated, and some normalization in cash generation would not change our view while leverage stays low and refinancing requirements remain manageable.

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We maintain our Neutral recommendation on MercadoLibre (Baa3/BBB-/BBB-) and shift our preferred expression back to the MELI 3.125% 2031 notes from the 4.900% 2033s. The issuer stance is unchanged, but the reason for it has evolved. Our focus is no longer principally on the direction of margins. The more important question is whether growth is translating into enough earnings and cash to absorb the funding requirements of Fintech. 2Q26 showed operating profitability stabilizing, with adjusted EBITDA margin broadly unchanged sequentially at 9.6%, but the credit profile did not improve with it. Gross and net leverage rose to 3.39x and 1.65x, the credit portfolio grew 75.2% YoY against 49.8% consolidated revenue growth, and only $214 million of adjusted free cash flow remained after a quarter that generated $3.22 billion of free operating cash flow. We think that combination keeps MercadoLibre a strong investment-grade LatAm credit, but not one where current spreads offer enough cushion to move beyond Neutral.

For the issuer call, the question is whether current spreads compensate investors for a balance sheet expanding faster than earnings. We do not think they do. The 2031s at 128 bps OAS trade flat to the EM BBB corporate index and only 6 bps inside their own 1Y average, while sitting 5 bps wide of the 3M average of 123 bps. Both bonds also trade materially through the LatAm BBB curve. At those levels, the market already gives MercadoLibre substantial credit for its scale, ecosystem economics, and market access even as balance-sheet intensity continues to rise. Short-term coverage declined to 0.97x, or 1.08x including the undrawn revolver, and the credit portfolio continues to grow at a double-digit sequential pace. We see no issuer-level dislocation that would justify an Overweight.

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We move to Neutral on JBS (Baa3/BBB-/BBB-) from Overweight but retain a bond-level Overweight on the JBS 7.250% 2053 notes, making them our preferred expression over the 6.500% 2052s. We also shift our standard below-par alternative to the 6.375% 2066s, while retaining a separate deep-discount expression for price-focused mandates. This is a valuation decision before it is a credit decision. Our 1Q26 Overweight rested on a curve that paid investors across maturities for a leverage cycle we expected to prove temporary. Much of that compensation has now been collected where it was largest. The 2031 to 2034 bonds trade 12 to 19 bps inside their own 1-year averages, while the 2052-and-longer bonds remain within 8 bps of their respective 1-year averages.

Weaker credit metrics raise the bar for an issuer-level Overweight, but they are not the reason we step back. The sequential recovery in 2Q26 and the return to positive reported free cash flow reduce the concern created by the prior quarter. The leverage cycle has simply lasted longer than we assumed when we made the call. Company-defined net leverage of 3.10x now sits outside management’s 2.0x to 3.0x target, and our lease-inclusive measure of 3.45x sits further above it. We remain comfortable owning the credit because the liability structure gives JBS time. Average debt maturity is above 15 years, near-term maturities remain limited through 2030, and the liquidity buffer was strengthened again in August. JBS can carry an extended period of weak earnings without the balance sheet forcing a decision.

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We maintain our Neutral recommendation on Braskem and continue to prefer the BRKME 8.500% 2031s as the most balanced expression of risk across the senior unsecured curve. The basis for the call has changed since 1Q26. Braskem is no longer a stressed liquidity credit facing the possibility of a capital structure solution. Following the June creditor protection measures, the Chapter 15 filing, the expiration of applicable cure periods and subsequent payment defaults, the company is in an active restructuring process. What determines bond value from here is the form of the eventual solution, the treatment of existing unsecured claims, the amount and seniority of any new money and ultimate recovery. The move into default changes how we value the bonds, but it does not on its own justify a more negative stance when current dollar prices already discount substantial impairment.

The 2Q26 earnings recovery does not alter that framework. Adjusted EBITDA of R$5.25 billion was driven by a supply shock to petrochemical spreads that management itself does not treat as a cyclical turn, and reference spreads had already returned to pre-conflict levels by quarter-end. For creditors, the more important point is that the earnings did not translate into positive free operating cash flow. Working capital absorbed R$2.76 billion, reported operating cash flow was only R$29 million and free operating cash flow remained negative at R$535 million. The quarter shows what the assets can earn under favorable spreads. It does not show that the balance sheet problem has been solved. Available corporate cash covers only around two-thirds of remaining 2026 contractual maturities before the reclassification of defaulted obligations, which in our view makes some combination of creditor concessions and external support increasingly difficult to avoid.

Two developments since 1Q26 partially offset the fundamental weakness and are the main reason we do not move to Underweight. First, the existing capital structure still leaves the unsecured curve with recovery optionality. The 2Q26 debt breakdown shows corporate debt concentrated in bonds and unsecured debentures, so the senior unsecured curve has no large layer of collateralized debt ahead of it today. That may not last. Braskem’s August 20 filing confirms that creditor proposals under evaluation include potential capitalization and the granting of security interests over assets, which makes the amount and form of any new collateralization an important recovery variable.

Second, the Braskem Idesa agreement is a useful reference for the restructuring process, though not for recovery. It shows that Braskem can close a complex creditor negotiation involving substantial deleveraging, new capital and a prepackaged filing. Against that, the parent retains a funding commitment to the subsidiary that is an additional call on liquidity at a point when liquidity is the binding constraint, and we do not read the Idesa outcome as a recovery floor for BRKME unsecured notes. Braskem said on August 20 that discussions with financial creditors had intensified and that it was evaluating potential additional protection measures as the 60-day stay approaches expiry, with no decision yet reached on restructuring terms. The expiry of that protection period and the choice of restructuring path are the next decision points.

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We upgrade Minerva (Ba3/BB/BB) to Overweight from Neutral and prefer the BEEFBZ 4.375% 2031 notes as the cleanest risk-adjusted expression of the credit. The upgrade is valuation-driven and does not rest on a clean fundamental inflection. Credit metrics weakened sequentially, working capital remains a drag on cash generation, and supplier finance has become a more meaningful component of adjusted leverage. Liquidity nevertheless remains strong, conventional net leverage is still materially below year-ago levels, and the intermediate bonds have repriced substantially more than the broader EM BB market. We think current spreads now provide sufficient compensation for the remaining credit risks.

The fundamental picture remains mixed. Net leverage increased to 2.94x from 2.77x, while cash interest coverage declined to 1.66x from 1.93x. Supplier finance increased R$744 million QoQ to R$4.70 billion, more than reversing the R$399 million decline recorded in 1Q26 and lifting adjusted net leverage to 3.90x from 3.56x. We therefore view interest coverage and adjusted leverage, rather than liquidity or refinancing risk, as the principal balance-sheet constraints. The increase in gross debt largely reflected deliberate prefunding, while net debt rose only R$667 million sequentially. Cash covers short-term debt by approximately 2.7x and is sufficient to cover scheduled maturities through 2029.

Cash conversion is the main fundamental swing factor. Free cash flow before working capital was positive in 2Q26, with the reported outflow driven by a R$1.07 billion working-capital investment. Management expects part of the first-half receivables and inventory build to begin converting into cash in 3Q26 and indicated that roughly R$3 billion of inventory could be monetized in the near term, potentially reducing leverage by 0.5x to 0.6x. We expect second-half cash generation to improve, but we do not underwrite management’s 2.2x to 2.3x year-end leverage path. China’s import quota is already a constraint on Brazilian export flexibility in 3Q26, and the risk, in our view, extends beyond the timing of the working-capital release. A tighter Brazilian cattle cycle could keep earnings and cash conversion constrained into 2027 even if inventories normalize in 2H26, limiting the pace of subsequent deleveraging. Strong global beef pricing and Minerva’s export platform should provide some support, but we do not assume they fully offset higher cattle costs.

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We maintain our Opportunistic Overweight recommendation on CSN and shift our preferred bond to the CSN Resources 8.875% 2030s. We no longer recommend the CSN Resources 4.625% 2031s as our preferred expression, although we continue to view them as appropriate for accounts placing greater weight on downside protection than carry. We do not recommend the CSN Resources 5.875% 2032s or the residual CSN Inova 6.750% 2028s. The Opportunistic qualifier reflects CSN’s weak organic cash generation, tight parent-level liquidity and continued dependence on liability management and asset monetization, but we think current spreads overcompensate investors for the risk of principal impairment over our 9 to 12 month horizon.

CSN’s USD senior unsecured curve carries a CCC+ composite rating, with Moody’s at Caa1, S&P at B and Fitch at CCC+. Against selected CCC-category comparables, the spread differential remains unusually wide. The CSN Resources 8.875% 2030s at 1,349 bps OAS trade roughly 570 to 940 bps wide of the selected Kosmos, MHP and Metinvest bonds shown in our curve analysis. The differential has widened through 2026 rather than representing a stable cohort premium. The selected Kosmos and Metinvest bonds are up approximately 27% to 62% YTD, while the CSN bonds are down approximately 7.5% to 14.9%, reinforcing that the spread gap is primarily issuer-specific rather than a generic lower-rated credit technical. Metinvest provides the clearest illustration. Despite direct exposure to the war in Ukraine, its 2027 and 2029 bonds trade roughly 720 to 780 bps inside the CSN Resources 2030s. We do not treat those spreads as fair-value targets, but the differential supports our view that CSN continues to price materially more credit stress than our base case assumes. The EM B index at 407 bps is more useful as a potential re-rating destination, leaving approximately 940 bps of spread between the CSN Resources 2030s and that benchmark.

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We move to Neutral on YPF (B1/B/B-) from Overweight and shift our preferred expression to the YPFDAR 9.500% 2031 notes from the 8.250% 2034s. The issuer change is a valuation call rather than a credit call. YPF’s fundamental profile strengthened materially in 2Q26, with record EBITDA, net leverage below 1.2x, cash interest coverage above 6x and a liquidity position we now assess as adequate rather than weak. Our issue is not with the direction of the credit. In fact, we think the underlying credit is stronger than the published rating category alone suggests. Neutral should therefore not be read as a cautious view on YPF’s credit trajectory. The question is whether enough issuer-level upside remains after the re-rating already delivered.

The market is increasingly pricing YPF on its forward credit profile rather than its headline ratings. The 7.000% 2033s trade at 253 bps OAS, only 13 bps wide of the EM BB corporate index at 240 bps and well inside the EM B index at 402 bps. We think that is broadly justified. YPF’s stronger leverage, liquidity, cash generation and asset quality support a market-implied credit profile above the published single-B ratings, and we would not expect the bonds to revert toward EM B spreads.

However, the speed of the repricing matters. Since our 1Q26 report, the 2033s have tightened 54 bps, the 8.250% 2034s 53 bps, the 9.500% 2031s 92 bps and the 7.000% 2047s 48 bps, compared with only 8 bps for the EM BB index. The four lines we consider most relevant also trade inside their 3-month averages and just 13 to 29 bps above their 1-year lows, against 219 to 314 bps below their 1-year highs and 139 to 193 bps inside their 3-year averages. For an issuer-level Overweight from here, we would want either broad value across the curve or a fundamental trajectory that we think the market is still materially underestimating. At current levels, most of the curve already prices a substantial part of the improvement we expect, leaving the opportunity increasingly concentrated in bond selection.

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We remain Overweight on PEMEX, but with lower conviction and a narrower set of preferred positions supporting the call. The 2Q26 case for owning the credit now rests on carry, a refinancing profile that has improved more than any other part of the credit, and the specific points on the curve where compensation remains adequate. It no longer rests on further PEMEX-specific compression versus the sovereign, which we think has largely played out.

The fundamental improvement is what keeps us at Overweight rather than Neutral. Gross leverage declined to 4.0x from 5.2x in 1Q26 and 6.8x a year earlier, net leverage fell to 3.6x from 4.7x, and interest coverage improved to 2.6x from 2.1x. Short-term debt declined 55.9% YoY to $12.70 billion, materially reducing the maturity wall that framed the credit through most of 2025. LTM FFO returned to positive territory at $589 million from a deficit of approximately $4.0 billion in 1Q26, reflecting both the stronger quarter and the roll-off of a materially negative 2Q25, but remained weak relative to PEMEX’s approximately $79.6 billion debt burden.

We would nonetheless resist reading the improvement as standalone deleveraging. Supplier obligations increased sequentially to $21.41 billion, while only 37.2% of the 2026 investment plan had been exercised by June, leaving a heavier spending burden in 2H26. Pre-contribution net free cash flow also remained negative at $635 million despite the sharp improvement in EBITDA. Management indicated that federal support for the remainder of 2026 is already established in the budget, with no additional amounts anticipated this year. We think that is the most relevant forward statement of the quarter for bondholders because it confirms the support while limiting expectations for incremental assistance during the remainder of the year.

Liquidity is where bondholder risk has changed most, even though we continue to characterize it as weak. Cash and short-term investments of $8.27 billion, together with roughly $4.44 billion of available committed facilities, cover short-term debt at approximately 1.0x, which remains thin against a $21.41 billion supplier balance and continued reliance on external funding. In our view, the renewal of the revolving facilities matters more than the coverage ratio itself because it removes near-term bank refinancing as another source of uncertainty and extends committed funding visibility through 2029.

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We maintain our Neutral recommendation on Gerdau and view the GGBRBZ 5.750% 2035 notes as the preferred expression of the credit. 2Q26 leaves us with an issuer that improved on nearly every metric we track and a curve that has already absorbed much of that improvement. Gross leverage of 1.32x, net leverage of 0.85x, FFO to gross debt of 57.6% and R$9.94 billion of liquidity against R$1.11 billion of short-term debt place Gerdau at the stronger end of the BBB category, while 2026 capex is running slightly below the R$4.7 billion plan. We stay Neutral because the constraint is price, not credit. At 138 bps OAS, the 2035s plot essentially on the duration-adjusted U.S. BBB curve, leaving little if any incremental spread compensation for Brazil risk.

We think that positioning is defensible but leaves little in reserve. North America generated roughly 74% of LTM adjusted EBITDA against 53% of gross debt denominated in U.S. dollars, providing a meaningful natural hedge and an earnings base that is substantially less exposed to Brazilian steel pricing. The 2035s trade approximately 54 bps inside the Brazil 2033 sovereign with about a year more duration, and we do not treat the sovereign as a valuation floor for an issuer with this earnings mix. The practical consequence for bondholders, in our view, is that near-term earnings sensitivity is now more heavily tied to U.S. steel spreads, Section 232 and the U.S. investment cycle, while Brazil remains the main source of potential incremental recovery rather than the current earnings anchor.

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We remain Neutral on Cemex and maintain our Buy recommendation on the CEMEX 5.750% 2036 notes, which have been our preferred curve expression since issuance in June. As discussed in our new-issue report, Cemex Prices US$1.5bn 5.750% 2036 Senior Unsecured Notes, the original call reflected the bonds’ carry, liquidity, near-par entry point and more efficient access to the long end of the Cemex curve. Since then, secondary-market widening, stronger free cash flow and further deleveraging have increased our conviction in the Buy. The issuer remains Neutral because value is concentrated in the 2036s rather than broad enough across the curve to support an issuer-level Overweight.

Fundamentals continue to improve. Net leverage including perpetual notes declined to 2.1x from 2.3x, while the ex-perpetual measure increased modestly to 1.8x from 1.7x following the cash redemption of the subordinated notes. EBITDA interest coverage improved to 7.5x and FFO to gross debt reached 34.4%. The new $3.0 billion revolving facility, an average debt life of 5.4 years and approximately $741 million of maturities through 2028 compare with $2.95 billion of liquidity, making near-term refinancing risk a secondary consideration. We think Cemex is approaching metrics capable of supporting a one-notch upgrade, and Fitch revised the Outlook on its BBB- rating to Positive in April 2026, but our recommendation remains anchored in fundamentals and valuation.

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We maintain our Overweight recommendation on Vista Energy and shift our preferred curve expression to the VISTAA 7.875% 2038 notes from the VISTAA 7.625% 2035 notes. The Overweight rests on a credit that is deleveraging faster than its curve is repricing, with net leverage declining to 1.45x and FFO to debt improving to 40.6% as of June 2026. What has changed this quarter is the distribution of value. The 2033s have compressed through the benchmark and no longer compensate adequately for country risk, the 2035s screen as fairly valued, and the 2038s are the only point on Vista’s curve that still provides a meaningful OAS concession.

Vista enters the second half with the acquired interests consolidated, a full-quarter contribution ahead and management guiding toward net leverage of approximately 1.0x by year-end 2026. That target is set on Vista’s own definition, which stood at 1.41x in 2Q26 against the 1.45x we calculate including leases. We think that path is credible and see delivery against it as the primary driver of further spread compression. We do not assume additional country-risk compression in our base case. The sensitivity runs both ways, as management indicated that a $10/bbl change in Brent would affect 2H26 adjusted EBITDA by approximately $200 million. The leverage trajectory is therefore considerably more price-dependent than the production trajectory.

Liquidity keeps the Overweight selective rather than curve-wide. Cash and short-term investments covered approximately 83% of short-term debt at quarter-end, improving from 58% in 1Q26, while the contractual maturity schedule is lighter than the headline balance suggests, with no international bond amortization until 2031. The absence of disclosed committed USD revolving facilities still leaves Vista dependent on internally generated cash and continued capital-market access. We view that dependence as manageable at 1.45x leverage, but materially less comfortable if deleveraging stalls.

Argentina is the main risk to duration extension, and our sovereign stance is less constructive than our view on Vista. We continue to see the country as a normalization trade rather than a normalized credit, with thin net reserves, rising IMF repayments and the October 2027 election limiting visibility. Moody’s July 21 upgrade to B3 with a positive outlook aligned its rating with Fitch and S&P at the B- equivalent, while the increase in the foreign-currency country ceiling to B1 improved ratings headroom for Argentine corporates rated on Moody’s scale. The action validates the stabilization but largely crystallizes the ratings-convergence catalyst, leaving further progress dependent on reserve accumulation and external liquidity. For our broader sovereign view, see Argentina Sovereign Debt: Normalization Trade, Not Normalized Credit.

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We move Simpar to Neutral at the issuer level, while expressing our constructive view through an Overweight recommendation on the MOVIBZ 5.250% 2031 notes as the preferred total-return and relative-value opportunity within the bond curve. The credit story is improving directionally, but after the recent spread compression, the 1Q26 results were not clean enough to support a broad Overweight recommendation across the group at current bond levels. Leverage remains elevated, interest coverage remains thin against Brazil’s high interest rate backdrop, and reported net free cash flow remained negative in 1Q26 after working capital. The lower-capex and value-extraction phase is becoming more visible, but the deleveraging thesis still needs cleaner evidence of recurring free cash flow after interest and working capital, with less reliance on temporary working capital swings, asset monetization, capital increases, or continued refinancing access.

The recommendation is therefore less about a broad re-rating call and more about where the next leg of risk-adjusted upside remains. Simpar’s operating direction supports staying involved in the credit, but the first stage of spread compression across parts of the curve has largely played out. VAMOBZ 2031 remains the most carry-efficient bond in the 2031 area, but at 588 bps it now trades close to its 1Y Z-spread minimum of 583 bps. By contrast, MOVIBZ 2031 offers the cleaner total-return setup, as it combines a deep discount price, operating-company recourse, and a current 529 bps Z-spread.

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We move our recommendation on Telecom Argentina (B2/B-/B-) from Overweight to Neutral, while retaining the TECOAR 8.500% 2036 notes as our preferred expression within the curve for investors seeking to maintain exposure. The change is driven by valuation rather than a reversal in our fundamental view of the credit. Telecom remains an improving B rated Argentine credit, supported by TMA margin convergence, lower leverage, positive free cash flow, and a stronger maturity profile after the January refinancing. However, the front of the curve has rallied to levels that leave limited room for additional spread compression, given weak liquidity, unresolved regulatory risk around the TMA acquisition, and the dividend authorization in place through the end of 2026.

The 1Q26 results support the credit, but they do not justify keeping a broad issuer level Overweight after the move tighter. The key improvement was the quality of profitability across the enlarged platform, especially at TMA, where margin convergence progressed faster than we previously expected. That matters because the investment case after the acquisition depends less on near term revenue synergies, which remain constrained by the regulatory process, and more on cost discipline, efficiency gains, and the ability to narrow the profitability gap between the two platforms. The quarter also reinforced that the January refinancing was not just a technical event. Telecom’s maturity profile is now more manageable, and near-term refinancing pressure has declined.

These positives would normally support a more constructive credit call, but in our view, they are already largely reflected in the front of the curve. The TECOAR 9.500% 2031 notes trade at $107.3, with 3.4 years of duration, 343 bps Z-spread, and 7.3% YTW. At 343 bps, the 2031s screen near one-year tights and well inside the 3M and 1Y averages of 406 bps and 483 bps, respectively. The TECOAR 9.250% 2033 notes trade at $106.2, with 3.1 years of duration, 362 bps Z-spread, and 7.4% YTW. The current Z-spread is also near the tight end of its one-year range and well inside the 3M and 1Y averages of 422 bps and 504 bps, respectively. On a yield basis, the 2031s and 2033s yield meaningfully below the EM B Index YTW of 8.7%.

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We maintain our Neutral recommendation on MercadoLibre. We continue to view MELI as one of the highest-quality BBB credits in LatAm, supported by structural leadership in e-commerce and fintech, strong ecosystem dynamics, scale advantages, and robust operating cash generation. However, 1Q26 reinforced the same credit trade-off that shaped our 4Q25 view. Growth remains exceptional, but management continues to prioritize ecosystem expansion, credit growth, free shipping, fulfillment, 1P, cross-border trade, AI, and credit card scaling over near-term margin recovery. We view this strategy as supportive of long-term franchise value, but it keeps profitability under pressure, sustains a structurally larger balance sheet, and limits the case for a more constructive bond recommendation at current spreads.

From a credit perspective, the quarter does not change our view of MELI as a strong investment-grade issuer, but it reinforces why we remain Neutral. The company continues to generate substantial operating cash flow, but adjusted free cash flow remains sensitive to the pace of Mercado Pago credit growth. Leverage moved higher, liquidity coverage tightened, and margin recovery is likely to remain gradual as management keeps investing behind ecosystem growth. We do not view these trends as a material credit concern given MELI’s scale, cash generation, and market access, but they temper the case for adding exposure despite the modest spread give-back and better all-in yield.

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We maintain our Opportunistic Overweight recommendation on CSN, with a preference for the CSN 4.625% 2031s as the more balanced expression and the CSN 5.875% 2032s as the higher upside expression within our preferred part of the curve. We continue to use the Opportunistic Overweight label deliberately, as the thesis remains driven by valuation dislocation, distressed dollar prices, and potential upside from deleveraging execution rather than by a clean improvement in the underlying credit trajectory. The recent downgrade cycle remains central to the spread dislocation, but we think the market is now pricing CSN closer to a distressed recovery trade than a conventional single B credit.

1Q26 results were not strong enough to remove the core concerns around leverage, free cash flow, secured debt, and execution risk, but they also did not point to a near term liquidity event. Revenues declined 7.0% QoQ and 2.8% YoY to R$10.60 billion, while adjusted EBITDA declined 12.1% QoQ on our normalized basis but increased 5.5% YoY to R$2.65 billion. Operating performance was mixed, with weaker sequential EBITDA mainly reflecting mining seasonality, heavier rainfall, and logistics pressure, while cement delivered record EBITDA and steel showed signs of improvement in March and April. Credit metrics improved sequentially, with gross leverage declining to 4.74x from 4.98x and net leverage improving to 3.49x from 3.59x. However, leverage remains materially higher when customer prepayments are included, with gross leverage at 5.98x and net leverage at 4.72x, reinforcing that the balance sheet remains stretched despite the sequential improvement. Cash generation also remained weak, as adjusted EBITDA covered capex and interest, but working capital and other below the line items pushed net free cash flow to a R$1.04 billion outflow. In our view, the quarter keeps the thesis tied to execution, with deleveraging still dependent on stronger cash conversion, inventory reduction, refinancing execution, and asset sale proceeds.

Liquidity remains adequate at the consolidated level, but the headline cash balance deserves caution from a bondholder perspective. CSN’s reported cash of R$14.62 billion covered short term debt by 1.6x as of March 2026, while the standalone parent balance sheet showed a materially tighter position. Parent level cash and short term investments totaled R$2.21 billion against R$4.96 billion of standalone short term borrowings and R$12 million of lease liabilities, leaving a funding gap of roughly R$2.76 billion before refinancing, intercompany flows, asset sales, or new funding sources. We think this distinction matters because the parent company carries the key refinancing burden, including near term bank maturities, financial expenses, capex needs, and the 2028 bond maturity.

The US$1.2 billion bridge loan signed in April, with potential expansion to US$1.4 billion, materially improves near term funding visibility. Including the bridge loan proceeds, pro forma liquidity would increase to approximately R$20.88 billion, short term debt would represent 44.5% of pro forma liquidity, and pro forma liquidity would cover short term debt by 2.2x. We would still not characterize liquidity as strong, given negative free cash flow and the much tighter standalone parent position, but the bridge loan reduces near term refinancing pressure and gives CSN additional time to execute its deleveraging plan.

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We maintain our Neutral recommendation on Braskem. 1Q26 results improved sequentially at the EBITDA level, but not enough to change the credit debate. Braskem remains a capital structure and liquidity story rather than a clean cyclical recovery story, with very high leverage, negative FFO, weak cash generation, limited working capital flexibility, and the drawn US$1.0 billion standby facility due in December 2026 still central to the refinancing discussion. We think REIQ support, the recent improvement in petrochemical spreads, and the ongoing governance reset provide important optionality, but they do not yet solve the balance sheet problem.

The main change since our 4Q25 downgrade is valuation. Braskem’s senior unsecured bonds have rallied materially from distressed levels, with the BRKME 4.500% 2028s now at $66.9, up from $46.9 at the time of our 4Q25 report, the BRKME 4.500% 2030s at $60.9 versus $46.4, the BRKME 8.500% 2031s at $62.1 versus $44.9, and the BRKME 5.875% 2050s at $48.3 versus $38.5. The move reflects lower perceived immediate default risk, policy support, better short-term spread expectations, and progress on the ownership and governance framework. However, the underlying credit risks remain largely unresolved. In our view, the rally has reduced the margin of safety before Braskem has delivered a credible out-of-court solution, restored working capital access, or addressed the December 2026 standby maturity. That keeps us from turning more constructive, even with yields still elevated across the curve.

We also recognize that the operating backdrop has become less negative since the 4Q25 report. Petrochemical spreads have improved, and management indicated that stronger pricing was already visible in April. Management also noted that current spread levels could support high-cycle EBITDA potential, using 1Q17 as a reference point, when quarterly EBITDA exceeded US$1.0 billion under similar spread conditions. This is an important reference, but not a normalized earnings target. Braskem also emphasized that liquidity, working capital, feedstock access, and utilization remain the binding constraints on translating stronger spreads into cash generation. We therefore view the better spread environment as a meaningful source of optionality, but not yet as confirmation of a durable credit turn.

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We maintain our Overweight recommendation on JBS, although the trade has become more selective following weaker 1Q26 results and the spread compression observed across the curve since 4Q25. The quarter was clearly softer, with adjusted EBITDA down 33.9% QoQ and 25.8% YoY, free operating cash flow turning to a $1.47 billion outflow, and our adjusted gross and net leverage increasing to 3.62x and 3.11x, respectively. We do not think 1Q26 breaks the broader credit thesis, as JBS remains supported by the scale and diversification of its global protein platform, strong liquidity, continued capital markets access, a manageable maturity profile, and management’s commitment to operate within its 2.0x to 3.0x company-defined net leverage target.

However, the quarter matters for bondholders because JBS used balance sheet capacity to absorb negative free cash flow while also carrying a declared $1.07 billion dividend payable in June. This leaves less room for near-term deleveraging and raises the importance of stronger cash generation over the remainder of 2026. We view refinancing activity as manageable given the company’s liquidity and market access, but paying dividends against a backdrop of negative free cash flow is less supportive from a creditor standpoint. We considered whether the weaker quarter, tighter free cash flow outlook, and leverage above 3.0x on our adjusted metrics justified moving to Neutral. Still, we think the remaining long-end spread pickup compensates investors for the deterioration in cash generation, provided management remains disciplined on shareholder distributions and M&A while free cash flow remains weak.

North America Beef remains the main operating overhang into 2026, while Brazil, Australia, Seara, and U.S. Pork continue to provide important offsets within a still uneven protein cycle. As a result, weaker cash generation and the upcoming June dividend make bond selection more important than it was at 4Q25.

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We maintain our Overweight recommendation on YPF (B2/B-/CCC+), as 1Q26 further supports our view that the company’s transition toward a lower-cost, oil-weighted, and more shale-centered asset base is improving credit resilience. Operating performance was strong, with adjusted EBITDA supported by stronger pricing, higher shale production, lower lifting costs, and better refinery processing levels. Shale oil production reached 205 kbbl/d, representing nearly 76% of total crude output, while total lifting costs declined to $8.8/boe. Credit metrics also improved, with gross leverage declining to 2.01x, net leverage falling to 1.69x, and interest coverage increasing to 4.86x. We think the quarter reinforces the underlying credit trajectory and supports a continued Overweight stance.

However, valuation now requires more discipline. YPF bonds have tightened meaningfully since our 4Q25 report, with compression especially sharp in the 8.250% 2034 notes. The Z-spread on the 2034s has tightened 94 bps to 333 bps from 427 bps at 4Q25, compared with a 70 bps move in the 2033s, a 59 bps move in the 9.500% 2031s, and a 53 bps move in the 2047s. The 2034s also no longer offer the same relative spread concession versus the 2033s. The Z-spread pickup has narrowed to about 22 bps from roughly 46 bps at 4Q25, reducing the relative value cushion that previously made the 2034s stand out more clearly. Still, this does not eliminate their appeal given their higher carry, wider current Z-spread, and lower duration. The strong performance leaves less room for another broad leg of spread compression, particularly with YPF already trading materially inside Argentina sovereign risk. The Z-spread differential between Argentina 2038s and YPF 2033s is now about 269 bps, compared with roughly 363 bps based on the 1-year average relationship, suggesting that a meaningful portion of the credit decoupling is already reflected in prices.

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We maintain our Neutral recommendation on Minerva, but with a more constructive valuation tone following the recent widening in the BEEFBZ 4.375% 2031 notes. Our 4Q25 downgrade was anchored on the view that the re-rating had largely played out, with the bonds trading close to or inside relevant EM BB benchmarks and offering limited asymmetry after a strong period of spread compression. Current levels have changed that picture. The 2031s have widened back to a meaningful spread premium versus the EM BB index while retaining a clean below-par structure, providing a more reasonable entry point. At the same time, we do not think the move is enough to restore an Overweight stance, as 1Q26 results still point to a balanced rather than improving operating setup. Revenue and EBITDA remain supported by scale, pricing, geographic diversification, and acquisition integration, but cattle cost inflation continues to pressure margins and free cash flow conversion, while cash interest coverage remains the key constraint to a more constructive credit view.

Minerva’s credit story remains intact. The company delivered 16.2% YoY EBITDA growth in 1Q26, reduced gross debt by 11.4% QoQ through active liability management, and maintained R$10.88 billion in liquidity, covering short-term maturities by 3.1x. Capital allocation continues to balance deleveraging with a more visible shareholder return framework, while the diversified export platform across Brazil, Argentina, Colombia, Uruguay, Paraguay, and Australia provides flexibility across origins and end markets.

However, the operating backdrop is not without pressure. Management expects 2026 margins to remain below 2025 levels on higher cattle costs across key origins, gross margin contracted YoY in 1Q26, net free cash flow was negative at R$811 million, net leverage increased modestly to 2.77x, and cash interest coverage of 1.93x remains below the 2.0x level we view as necessary for a more constructive stance. We note that cash financial expenses declined YoY in 1Q26, supported by active liability management. The new 7.500% 2036 notes are expected to target the rollover of short-term debt, which should eliminate 2026 refinancing risk and improve Minerva’s maturity profile and refinancing flexibility. While the coupon is meaningful, the net impact on cash interest will depend on the cost and amount of debt ultimately repaid. Sustained EBITDA growth and stronger free cash flow conversion after working capital therefore remain central to further improvement in interest coverage and credit metrics.

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We maintain our Neutral recommendation on Suzano. We continue to view Suzano as a high-quality BBB- LatAm credit, supported by global cost leadership in hardwood pulp, strong liquidity, a diversified revenue base, and disciplined financial policy. Valuation, however, remains the main constraint after the recent tightening. 1Q26 results were weaker on a headline basis, but the decline was driven mostly by normal first-quarter seasonality, lower shipments, BRL appreciation, and scheduled maintenance downtime rather than any deterioration in Suzano’s competitive position. Pulp pricing improved sequentially, cash costs remained structurally competitive, and liquidity remains strong, but leverage is still elevated and the credit remains exposed to pulp-cycle volatility and FX translation pressure.

The quarter reinforced the balance of the credit story. Suzano continues to benefit from scale, cost competitiveness, strong liquidity access, and a more supportive pulp pricing backdrop, while lower 2026 capex should help free cash flow recover as seasonal headwinds normalize. Potential non-core asset sales could provide an additional deleveraging lever, although we continue to view operating cash flow as the central driver of balance sheet improvement. At the same time, 1Q26 showed that higher USD pulp prices can still be diluted in reported BRL EBITDA by a stronger BRL, seasonal volume weakness, and scheduled maintenance effects. Gross leverage improved to 4.5x from 4.7x in December 2025, while net leverage remained broadly stable at 3.5x. That leaves the balance sheet supportive of the credit, but not yet strong enough to justify an Overweight recommendation. We therefore see free cash flow generation and gradual deleveraging as the key variables for any more durable re-rating.

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