Welcome to Management in Focus, the monthly bulletin from Galeazzi & Associates. In the last week of each month, you will receive exclusive analyses, key topics to watch, and insights from Galeazzi & Associates on market and business trends to help enhance your planning and make better decisions based on the expertise and vision of our professionals.

Last Sunday (28th), the market was informed about the out-of-court recovery (RE) agreement signed by the Casas Bahia group with two of its main creditors, Bradesco and Banco do Brasil. According to reports, such as this one from Valor Econômico, the retail giant will have 72 months to pay R$ 4.1 billion of its gross debt, with a 1.5 percentage point reduction in the average cost.

Since Bradesco and Banco do Brasil, representing about 55% of Casas Bahia’s creditors, approved the out-of-court recovery, the remaining creditors will be "forced" to accept the established instrument (this is the main difference between a judicial recovery process and an out-of-court recovery. In the latter, if the company gains the support of a simple majority of the creditors involved in the negotiation, it submits this agreement to the judiciary, requesting approval, thereby speeding up the entire process).

As a result, the expectation is that the company will save R$ 4.3 billion of its cash flow until 2027, corresponding to the amounts scheduled for debt payments during this period. The reasons that led to this critical moment for the retailer are being speculated by the media, such as cash mismanagement in recent years and the extensive effort (with little return) invested in its digital strategy.

However, beyond the reasons, there are three important points that should be understood and discussed by companies or entrepreneurs considering this news as an alternative for negotiating their debts.

1. Although 2024 is already entering May, the economic sentiment remains the same. This means the need for debt renegotiation remains high (as shown by numerous surveys released post-January).
2. Choosing RE as a tool can be advantageous, especially when there is a large concentration of debt among a few creditors. For Casas Bahia, the approval of two creditors was sufficient. However, in cases of more dispersed debt, opting for RE can be more complex and challenging to implement.
3. Companies should seek definitive solutions rather than falling into the temptation of palliative measures. The retailer had recently renegotiated its debts and realized the alternative was not sustainable, leading it to opt for RE with a longer term and more favorable conditions.

The competent court approved the processing of the RE plan request the following day, demonstrating that everything was done within the required legal parameters. Now, it remains to observe the developments of the plan’s implementation with the other creditors and to monitor the execution of the retailer's restructuring plan.

Happy reading!