Brazil Prosecutors Oppose Court Approval of Retailer GPA’s Debt Recovery Plan

São Paulo prosecutors have formally opposed a debt restructuring plan presented by Brazil's retail giant GPA, arguing the deal mixes unequal creditors and may violate legal principles of equality and good faith. The state's public prosecutor's office, known as Ministério Público de São Paulo, maintains the plan does not adequately address the varying financial realities of the different creditor groups.

Specifically, the office points out the plan combines various types of creditors, including big banks and small investors, into a single payment structure. This, prosecutors say, risks unfairly burdening smaller investors with terms more favorable to larger financial institutions. The plan restructures R$4.5 billion (US$873 million) of unsecured debt owed by GPA, a prominent Brazilian supermarket chain.

The decree would offer two series of debentures, totaling R$2.6 billion (US$505 million), with no nominal haircut – meaning creditors would receive the full face value of their claims. However, the prosecutors warn that the structure of Option A, the main payment route, aligns closely with the credit volumes of the banks that backed the plan from the start, raising suspicions of preferential treatment.

Six creditors have already launched legal challenges against the plan, alleging conflicts of interest and questioning the fairness of the deal. GPA maintains the restructuring is necessary for its survival and that the majority of creditors have chosen the main payment option. The matter now rests with a São Paulo judge, who must decide whether to confirm the plan as drafted, demand changes, or reject it outright.

The judge's decision will set a precedent for future debt restructurings in Brazil, particularly in how majority creditors can structure deals that may disadvantage minority creditors.