El Niño is back, and Cloud 9fin’s LatAm and CEEMEA editors see credit risks spreading across energy, agriculture and sovereign balance sheets.
Deputy LevFin Editor Sasha Padbidri speaks with LatAm Editor Xochitl Herrera and CEEMEA Editor Dan Alderson on how worsening weather shocks are feeding into leveraged credit and emerging market risk.
In Colombia, drought could cut hydropower output just as gas production falls, forcing more imports while Canacol works through a Canadian restructuring process. Xochitl also flags Mexico’s exposure to Henry Hub through gas imports, Chilean utilities’ hydropower upside, and Brazil’s soybean and corn vulnerability.
Dan breaks down Africa’s uneven El Niño effects, from Southern African drought to East African flooding, against a backdrop of food, fuel and fertilizer disruption.
Here’s a summary of the articles mentioned in the podcast, exclusively available for 9fin clients:
- Africa vs Godzilla El Niño — Key battle lines for credit in 2026/27
- Colombia braces for perfect storm as El Niño looms over gas crisis
- FEMSA, KOF and Alsea may benefit from El Niño effect
- El Niño could lift Chile utilities, but less than last time
- Brazil climate whiplash could put key credits to the test
- Houston, we have a solution — How space data centers could be debt's next frontier
- Hurricane Helene hits southeastern US borrowers
- Hurricane Beryl shakes up Texas borrowers
- $98bn in AI projects disrupted by mounting environmental and labor risks
- Resistance is fertile — Iran war’s impact on agriculture and CPI
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Episode transcript
This transcript was generated with AI assistance. Report any material inconsistencies or inaccuracies by emailing podcast@9fin.com.
Will Ferrell
Welcome to WeatherScope. The biggest news this season, undoubtedly, the huge mass of warm Pacific water known as El Niño.
Sasha Padbidri
Hey, everyone. Welcome to this episode of Cloud 9fin, where we unpack all things credit. My name is Sasha Padbidri, and I'm the U.S. Deputy LevFin Editor. And today I'm joined by Dan Alderson, our CEMEA Editor, as well as Xochitl Herrera, our LatAm Editor. Today, we're going to talk about something that here in the U.S. We've already unpacked a while ago. We're going to talk about the consequences of natural disasters on leverage credits and other industries that are relevant to our audience.
Just to take our listeners back to 2024 and 2025, the U.S. LevFin team unpacked how natural disasters like Hurricanes Beryl and Helene had some consequences for certain leveraged credits. And that turned out to be a pretty interesting review. So I thought today we should do it for other sectors. Xochitl, Dan, welcome. I would love to hear your thoughts on, first of all, whether you think natural disasters are getting worse. And second of all, how has that impacted the sectors you cover?
Xochitl Herrera
Hey, hi, everyone. Hi, Sasha. So, yes, I do believe natural disasters are getting worse.
Sasha Padbidri
Thank you, Global Warming.
Xochitl Herrera
Thank you, Global Warming. At least I'm getting older. And rain is not what it used to be for me. Not fun anymore. But El Niño, it's a boy, ladies and gentlemen.
Chris Farley
For those of you who don't habla Espanol, El Niño is Spanish for The Niño.
Xochitl Herrera
El Niño caused China Fishery's demise 10 years ago or triggered it. And this time we have in some countries what I consider to be a perfect storm. For example, Colombia. In the case of Colombia, there's a possibility of drought, less rain, and they rely a lot on hydropower. No hydropower means that they have to rely on gas. And at the same time, gas production is falling because of political reasons. There hasn't been a lot of exploration in the last decade or so. And also geologically, some wells they deplete. So less gas at the same time that you have less hydropower.
And the companies themselves, like Canacol, which is in a Canadian restructuring process, not only does it have less gas, it has less money to produce it. They're going to have to rely more on imported gas in a time where it's going to rise. And gas prices are global. One market affects the other. Mexico is saying that they don't have this issue. Well, buddy, your largest producer relies on gas and it imports 70% or 80% of its gas from the U.S. If Henry Hub prices go up, you are affected. So that's the case of Colombia, which I think is the one that has a short end of the stick. But you also have Brazil and you also have Argentina and Chile. And Chile is expecting more rainfall. So for them, it's actually going to be a boost because of their hydropower. Not as much as the last time for Chilean utilities. The upside is a bit more limited.
But in the case of Brazil, again, we go with global markets, global commodity markets. They can expect less rainfall in the north and in areas where soybean and corn is grown, is produced. And Brazil is a global powerhouse in terms of soybean production, in terms also of corn production, although a bit less so. So, lower crop yields are going to affect them, the companies and other regions, other markets. That's pretty much what we're looking at. That's pretty much what we published. And it was before El Niño was declared. Now that it is, is it going to be a Godzilla El Niño or not? Dan, you can chime in on that.
Dan Alderson
Sure. I think you've hit on a really important point about this, though, because even if you just look at one country like Brazil, It's such a vast country that you're going to see potentially different effects across different regions of Brazil. So it's not as clear cut to say, yeah, we're going to get rainfall in this bit and that's going to be great for this, bad for this. There's going to be a range of disruptions across even just one country that big.
The areas that I've been mostly looking at so far have been in Africa, actually, because it's less thought of there. But the 2015, 2016 El Niño was pretty impactful. But again, in like very, very different ways across different regions. In Southern Africa, for instance, it was like drought that was a problem. And then in like East Africa, it's more of a problem of flooding. West Africa and North Africa, it's harder to tell. There's just more competing weather systems what's going to happen.
But I think the crucial thing generally for El Niño this time, and we touched on this at the start, is that it's about the base levels that you're coming from into this. It's being discussed as a weather event typically. But for credit investors, it's really it's about the effects that happen from that. Inflation, food security, energy security you mentioned, and obviously sovereign risk events as well, because they can be on the hook for this.
So yeah. You've really got to look at it though, just like where we're coming at this from the base levels, rather than just, is it going to be a super El Niño, which it looks like it is now. That's what the latest models say. By that, they're thinking about something on the scale of 2015 or 2016 or worse, potentially. If you look back to 2015, 2016, levels of sea temperatures and atmospheric temperatures were back then. Since then, you've had more coastal erosion.
That, by the way, impacts the west coast of the US quite a lot as well. Sea temperatures are starting from a higher level. We're also starting from a worse level in terms of the recent disruptions that we've had to food supply chains and fuel supplies from the Gulf conflict. Those are still playing out. In terms of fertilisers, that's a long-running problem that even if, as we think the war is stopped today, those problems are still hanging over to agriculture. So yeah, I think that's where we started from in looking at it for Africa.
For the wider Europe region and CEMEA region, it's a tougher one. Europe's a hard one to really gauge. The reports seem to be that Spain is going to be really, really hot this year. But it depends on how you map these effects when they start. I think, generally, you start seeing it coming through towards the end of the year. And then that's when people start to do their projections. And then it starts to hit LatAm, peaking around the end of the year, right? If I'm right.
Sasha Padbidri
That's totally valid. I just, out of curiosity, wanted to understand whether or not from any of the conversations you've had with sources, just given the persistence of all these natural disasters and how they're getting worse, are they already incorporating this as a risk factor in their underwriting for debt?
Xochitl Herrera
From the underwriting portion, I wouldn't be able to answer. Dan can answer. Sources that are on the buy side, do consider that. But I don't know about underwriters.
Dan Alderson
In one of the pieces we wrote, I want to give a shout out to our ESG analyst, Ollie Wise on this, because we did a big piece on Africa and he brought in a lot of the ESG elements and what people look at. So that is definitely mapped in, especially around the ESG topic, you know, what there for different borrowers. If it's a question of like, who's actually planning for this, that's a different thing. And I haven't made a great amount of headway with some of like the commodity producers and what they're actually hedging. I have seen that certain hedges have been in action.
For Ghana with the cocoa production, there have been noticeable trading changes in people planning for El Niño and the potential for a lower yield on the crop there. But then if you look at the sovereign level, you see quite a wide range of approaches on this. I think from what I've seen, like Rwanda for instance, is one of the more recent ones to update its disaster reaction arrangements. But they've done it in a very, very careful and considered way.
So they and probably Kenya are quite ahead on this. Rather than just being reactive to something when it happens, they've got something in place already to mitigate for this and to have the money ready to go to put into crisis reaction. But I think if you look across other parts of Africa, you're going to find a wide disparity of preparedness. And that would be something for people to look into. Yeah.
Xochitl Herrera
Good. There's two things that you've mentioned, which is, well, it's multifactoral. The last time El Niño happened, oil prices had crashed in 2014-ish, '15. Now we are not coming off of that. We're coming off really high oil prices, a shipping crisis that has affected fertilizer worldwide. And if you look at crop yields and stuff like that, it matters. Rainfall, fertilizer, and well, just weather in general. You already have the fertilizer part.
So whoever is trying to game this or take advantage of it needs to take in so many factors. Governments too, like, I already have riots or protests over gas prices? Am I also going to have this over food prices? So let's better prepare. Some countries can have those lines committed or uncommitted ready, but not everybody can. That's why maybe some countries don't have this yet. There's a cost.
Dan Alderson
Yeah. And if you're talking about for bond investors, I was talking to a senior credit strategist the other day. They were saying that they've done the research on this in terms of the correlation with El Niño and bond returns, and they found a very weak correlation. I think there are obvious factors for this because, A, you don't know, as we pointed out, you don't know exactly where this is going to hit and how.
But also, then you have to look at, if you look at your average, not that there is an average senior sovereign, but you're going to be looking at Fed policy rates. You're going to be looking at oil prices. You're going to look at geopolitical stuff. You're going to be looking at politics within their own country. There's lots of factors that go into the EM credit performance. It's very hard to see that there's a correlation with El Niño. But that being said, we have seen patterns over recent El Niño's like 2015, 2016. And the big one before that was like in '98, I think there were big impacts that should be at least prepared for and people should be looking at their risks on that. And yeah, maybe their credit insurance and things like that or country insurance.
Sasha Padbidri
Got it. Are there any other natural disasters that you guys are also monitoring right now besides El Niño? I'm just asking because, as you know, in the US, we've also had issues with landslides and obviously the famous PG&E wildfire case, in addition to several storms that have happened during the summer season. Is there any other geographical phenomenon that you guys are following as well?
Xochitl Herrera
Not natural disaster, but in terms of water scarcity, at least in Mexico and with the whole AI boom. And I have seen in the case of Mexico, we had the nearshoring boom, quote unquote, that happened or not happened, depending on who you ask. But one of the issues that was limiting that was, okay, security, road connections, transport, electricity, access to water. There were plants, automotive plants that were going to come settle in a state and it's like, you know what, there's not enough water for you. So that is geological, but not necessarily a natural disaster situation. But that is the one that across the region I would be looking at.
Sasha Padbidri
Got it. What about you, Dan?
Dan Alderson
Well, I think that's a fantastic point. The AI buildout is going to be, we know that it's going to be hugely water-treatensive, energy-intensive, resource-intensive, and infrastructure-intensive. All of these things come together. And we know that there's already pushbacks. A lot of pushbacks against data center buildout in the US. A lot of it's to do local opposition for these reasons. So yeah, if you then are doing severe drought, or something like that, or mass-of-energy, increase because people needing to run the AC a long time or whatever this is going to be adding to that problem, I think, but this is why I guess they've been told they've got to produce their own power, right?
And even then it create they still have other problems to deal with. But yeah, I think the point you mentioned, Sasha, as well about the fires and the damage that happened from that. There's those have been huge and long running situations, right? I think those, over the years from different ones. Like the CDS market, for instance, there was quite a lot around that. But yeah, that definitely is a case that people are aware of those, those ones. CEMEA at the moment, there's a drought already in Zimbabwe. That's before El Niño.
So, these things already have to be taken to account. You have droughts in South Africa for several years as well. So, these are residual problems that are just going to be layered on. One curious one that I don't know how this will play out, but it's been, I mean, talking about a long-running problem, this is one of like 100 years, but the relationship between Egypt and Ethiopia for instance is quite an important one. I'm quite a short one already. The large part of that has been the focus on the GERD dam that Ethiopia built. The water coming into Egypt is through the Blue Nile. Most of it is coming from there and they put this massive dam on there. That was something that Egypt opposed for pretty much 100 years.
And it was only during the revolution that Ethiopia, I think, used the time of distraction of what was going on to get that completed, or start building it. And I think one of the key saving graces of the last few years is there hasn't been a drought that's affected Egypt badly because the tensions will really, really come to the surface, I think, over that dam. And just how much Ethiopia is allowing water to run through it. But I think they pretty much filled its capacity. So that's a good thing as well, but that is a potential source of some geopolitics in that part of the world.
But yeah, trying to think if there's anything else that is worth bringing in here, but I think those are the main things I can think of. I definitely think the AI one is around energy and water is something to watch really closely as this plays out.
Sasha Padbidri
No, I totally agree with you. But what it's worth, I did write a while ago about how how certain companies are thinking about having data centers in space to mitigate the water and energy issues that the Earth-based data centers are having.
Xochitl Herrera
Because there's so much water in space.
Sasha Padbidri
Well, apparently, because space is very cold, you don't need water to cool
Xochitl Herrera
That's interesting. Yeah.
Sasha Padbidri
Listen, it's a sci-fi concept at the moment because I don't know how feasible that's going to be. I know Amazon and Elon Musk have been really pushing for it, but hey, maybe that's one way to solve the water problem here.
Dan Alderson
The SpaceX S-1 prospectus was amazing, I thought. And yeah, just the line from that, trillions on the moon was just brilliant. I think it seems quite far-fetched to me, to be honest, but I don't know the full science of how you get data centers up there and all the accompanying infrastructure and do that. But maybe that's a problem for another day.
Sasha Padbidri
Absolutely. Well, just to ask you guys one final question, I'm just going to throw this in there. When you were saying El Niño, it's a boy, like that stood out to me because most hurricanes or natural disasters are named after women. Like, I'm just wondering, like, should change that?
Xochitl Herrera
Well, two things. One, there is El Niño and there is La Niña. So hang on for that. And also it's curious because hurricanes are supposed to be one male name, one female name, one male name, one female name. I don't know why in collective memory, either it just so happens that the worst hurricanes are female or that we remember them. Because in Mexico, the worst hurricanes have been both genders. El Gilberto, Alex. Well, those are the ones that hit my hometown, which is like northeast.
But there have been others that were female but supposedly there's this thing of one male one female maybe we'll just have to change to gender-free names or go go the U.S. Route to say like storm number NSF-53 and not name it but then they wouldn't be they wouldn't be memorable I guess. Dan anything to add?
Dan Alderson
Technically not so much on the naming front. But on the La Niña aspect, we are actually coming out of La Niña now. It's quite a long running thing. You get El Niño, then it goes straight into La Niña. So there is some theory and some evidence that the stronger the El Niño, the stronger the accompanying La Niña that follows it, which has its own problems as well. Because then you get reversal of all these things. You get some like much lower temperatures and that has impacts on crops for different reasons and other things. So yeah, look out for that for sure.
So yeah, it's not as clear cut as just planning for El Niño by any means. It's what comes over the longer term. So if you're looking as a bond investor, for instance, it's not just for like late '26, '27, but what are you modeling for your impacts in '28 and beyond that? That's the point I think I'd like to make on that really.
Sasha Padbidri
Awesome. I think that's a really good point and on, so thank you for that. To our listeners, thank you for listening to another stream of consciousness from the three of us. We really appreciate you giving us your time. Until next time, thank you Dan and Xochitl for joining me today.
Xochitl Herrera
Yeah thank you and you thank everybody for tuning in.
Dan Alderson
Thank you.
