Freedom Broker: a rate cut will save Movida about $7 million a year

A 25-basis-point cut in Brazil’s key rate could reduce Movida Europe S.A.’s (MOVIBZ) annual financial expenses by about $7 million, Freedom Broker analysts estimate. Monetary-policy easing supports the company’s credit metrics and prospects for reducing its debt burden. Freedom Broker maintains a positive view on the issuer and its “Buy up to 2 years” recommendation for the MOVIBZ 9.7’33 eurobonds.

Car rentals from Movida 

Movida Europe S.A. is a eurobond issuer affiliated with Brazil’s transport group Movida. The company provides short-term and long-term car rentals and also sells vehicles after they have been used in its rental fleet.

A rate cut will reduce interest expense

A reduction in Brazil’s benchmark interest rate (SELIC) is a positive factor for Movida’s credit metrics, Freedom Broker analysts note. As of the second quarter of 2026, the company’s net debt exposure linked to the CDI rate was about 14 billion Brazilian reais, or roughly $2.7 billion. This corresponds to approximately 80% of Movida’s net debt. CDI is Brazil’s benchmark interbank rate, which typically tracks the Selic key rate. Therefore, a decline in CDI lowers the cost of servicing a significant portion of the company’s debt.

According to Freedom Broker’s estimates, a decline in CDI reduces Movida’s net financial expenses by about 140 million reais, or $27 million per year. The interest coverage ratio could increase by about 0.2x. The latest 25-basis-point rate cut implies potential savings of around 35 million reais, or $7 million per year.

Brazil’s central bank continued policy easing

On September 16, the Central Bank of Brazil cut the Selic rate by 25 basis points, to 13.75%. This was the fifth consecutive cut since the easing cycle began in March. Over that period, the rate has fallen by a total of 125 basis points.

Brazil’s Monetary Policy Committee cited a gradual slowdown in economic activity alongside a still-strong labor market, as well as declines in headline and core inflation. At the same time, consumer price growth remains above the target level.

The regulator expects the national consumer price index to be 5.2% in 2026, 3.9% in 2027, and 3.2% in the first quarter of 2028, versus a 3% target. Therefore, policy needs to remain sufficiently tight to bring inflation back to target.

The Bloomberg consensus forecast assumes Selic will remain at 13.75% through the end of 2026 and decline to around 11.75% by the end of 2027. Further easing could additionally reduce Movida’s debt servicing costs.

EBITDA supports deleveraging

In the second quarter of 2026, the company’s EBITDA increased by 22% year over year and by 8% versus the prior quarter, to $334 million. Rental segment margins rose to 72.8% from 71.8% a year earlier and 70.3% in the previous quarter.

Movida’s total revenue grew by 2% year over year, to $746 million. Revenue from short-term and long-term rentals rose by 21% to $455 million, while revenue from used-car sales fell by 18% to $291 million.

Net debt-to-EBITDA declined from 2.9x to 2.8x. The metric used to test compliance with debt covenants remained at 2.66x, versus a maximum permitted level of 3.5x.

Fleet growth weighed on cash flow

The main negative factor in the second quarter was an increase in vehicle purchases. Movida purchased about 38.6 thousand cars—22% more than a year earlier and 165% more than in the previous quarter. Vehicle sales, meanwhile, declined by 25% year over year to 19.4 thousand.

The total fleet reached nearly 286 thousand vehicles, up 9% year over year. Cash capital expenditures rose by 74% to $705 million. As a result, free cash flow came in at negative $221 million versus positive $161 million a year earlier and negative $71 million in the first quarter.

Freedom Broker views the cash-flow deterioration as temporary. Management linked the fleet expansion to seasonal demand during Brazil’s July winter holidays, for which the company additionally prepared about 18 thousand vehicles.

Freedom maintained its bond recommendation

Freedom Broker maintained unchanged the “Buy up to 2 years” rating set in August for the senior unsecured eurobonds MOVIBZ 9.7’33. The issue’s coupon is 9.7% with semiannual payments, and the maturity date is October 11, 2033.

According to the previous review, the bonds’ yield to maturity was 10.9%, the current yield was 10.3%, and the indicative price was 94.49% of par. The amount outstanding is $350 million, and the minimum lot is $200 thousand.

This is not an individual investment recommendation.