Casino - Near term bonds benefiting from expected asset sales, 2024 and beyond need to rely on underlying performance

All,

Please find our updated analysis on Casino here.

We are taking a 2% of NAV long position in 2023 Casino bonds, at 95%, which trade at 7.2% YTM. However, to meet the RCF covenants plus the excess cash in the escrow account, we expect these bonds to be retired by end of 2021, with yield increasing to 9.3% on a Jan-22 takeout.

The news from last night, with Casino purchasing and cancelling €155m of the 2021-23 bonds, confirms the desire and need of Casino to continue to retire these bonds prior to maturity to meet covenants. Casino still has c.€114m of cash in the escrow account plus the expected Leader Price proceeds of c. €650m which is expected in next couple of weeks, which will lead to further bond purchases.

Downside: Overall sales numbers were lower than expected for Q3, with Casino citing decline in Paris over the summer due to lack of tourist numbers. Any further decline in sales will question the long term viability of the current capital structure. However, this is mitigated by what we think must be an accelerated schedule to retire the 21s,22s and 23s with the proceeds from the Leader Price sale and other assets n an effort to comply with RCF covenants. Additionally, the 2023 bonds need to be refinanced/repaid prior to October 2022 in order for the RCF to be extended by 1yr.

2024 and beyond: We have been unable to convince ourselves to take a position beyond the 2023 bonds. Given the tightening covenant levels, we fully expect the Company to announce further asset disposals when reporting the FY20 numbers early next year. However, while we see the Bonds ultimately value covered by the EV of the French operation - even while not profitable - the underlying business is not generating cash to carry the debt. Balancing the continued weak performance with potential further asset sales leaves us unwilling to take risk beyond the 2023 bonds. We are uncomfortable with the 2024 Quatrim bonds risk levels, and although those benefit from a security package, the secured and unsecured 2024 maturities will need to be refinanced simultaneously, or else...

Happy to discuss,

Tomás
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