Casino - Prior to numbers is the differential between Quantum secured bonds and Unsecured March 2024 too much

Please find our updated model here. 

We are considering taking a long position in the (unsecured) Mar-24 bonds with a corresponding short in the Quatrim (secured) Jan-24, which picks up 14pts but is slightly negative carry.  We don't expect Casino to realise any of the Quatrim security in the next 6-12 months timeframe and instead are likely to focus on improving liquidity from alternative assets.  We will update post results this evening.

Downside to this trade are two-fold:

1  Any realisation of the Quatrim security assets which will cause the bonds to trade up to their call protection.  Note the bonds are NC until November 21 at 102.75%, stepping down thereafter.  €913m of the €1,026m valuations are operating assets and without sale and leaseback, any sales are unlikely.  We don't believe it is realistic for Casino to finance a sale and leaseback cheaper than 5.5% on these bonds.

2  A deterioration of underlying performance, and the secured bonds retain a premium to the unsecured.  However, under this scenario, the security package becomes less relevant, as the Company will be more focused on the upcoming 2021-23 maturities.  It will be difficult to refinance the secured and leave the unsecured outstanding and if the overall 2024 maturities can not be refinanced, other options including Sauveguarde will have to be considered, where the secured bonds would also likely face a term-out. 

Upside to the trade is the capture of some of the 14pts differential.  The medium-term target for Casino is the repayment of its 2021-23 maturities, totalling €1.6bn, with €1.4bn of IFRS 5 assets held for sale likely to be used for this purpose.  Additionally, the Company has c. €950m of cash and €2bn RCF facility undrawn. So by mid FY22, the Company will have repaid the 2021 and 2022 bonds with cash balances just sufficient to repay the Jan-23 bonds.  The focus will then be solely on the large 2024 maturities, totalling €2.7bn.  All of these maturities will have to be dealt with together, underlying our trade that the differential between unsecured and secured is too much.

The trade is bullish because there appears to be sufficient collateral value in 2024. LatAm and Cnova total €1.3bn as of today and there will be a profitable core within France retail around Monoprix and Franprix most likely. Applying valuations we have seen on Leader Price for instance or even materially lower should in principle cover the bonds.

Happy to discuss.

Tomás
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