Casino/Rallye path becoming clearer - Positioning
All,
Please find our unchanged analysis here.
Recent events suggest Casino will pursue a conciliation/Sauvegarde Accélérée option now / early, with the proposed Teract merger forming the core of the plan as opposed to taking place before and Sauvegarde opening. As per our previous comments, we expected the vast majority of the debt to remain at CGP when going into the Sauvegarde, as this should help with cramming down the bonds.
Investment Considerations:
- We are exiting our 2.0%long position in the 24s.We had led the view that Naouri would not seek to enter Sauvegarde in the near term, and instead buy himself the option of better market conditions by foregoing the discount on the 2024s. However, the reality is the timeframe has accelerated and the conditions for 2024 bonds to be treated differently are diminishing. There remains the possibility that neither the merger nor the new equity proposal does not come to fruition and Casino continue to play for time. However, we are exiting our 2% position in the 2024’s. We are retaining our 2% long position in the 2027s.
Rallye’s decision:
- Rallye and its string of holding companies have requested and obtained the opening of mandats ad hoc (ad hoc mandates) proceedings to officially request waivers for the potential event of default that would occur if Casino entered into a consultation process with its creditors via the appointment of conciliateurs.
- More specifically, Rallye management will seek to adjust the existing terms under the safeguard plan, in order to reflect the changes that “may" happen at Chino.
- Note, the Board of Directors of all the holding Companies in the cascade have requested ad hoc mandate proceedings, including Rallye, Foncière Euris and Finatis.
- Entering into this procedure itself does not impact the current safeguard plan previously arranged.
Potential Conflicts:
- It has to be acknowledged that Naouri may view Fimalac as a hostile creditor. Fimalac are the providers of both the original Fimalac facility, which was used to refinance derivative exposure acquired by Křetínsky, and the recent New Money Facilities raised in February 2021 that Rallye used to fund a distressed tender of Rallye Unsecured bonds. Fimalac has security over c.12.8m shares as collateral for these two facilities.
- With Křetínsky offering Fimalac preferential treatment under the EP Global Commerce €1.1bn new money proposal, Fimalac may not be willing to support any waiver requests put forward by Rallye.
- We are unsure if the courts would view the three secured debt facilities as one creditor class or as three separate classes for the purposes of voting blocks.
Timing:
- As per our email yesterday, timing has become short-term. Casino is set to open Conciliation before the France Retail assets are merged with Teract. The consent solicitation preceding any request for Conciliation will expire on 19th May (subject to extensions by Casino Group).
- Concerning the potential merger with Teract, one of the statements reconfirms that the project remains conditional but with the expected timing to be prior end of Q2 2023.
Expectations for Conciliation:
- We expect Casino to put forward a plan that centres on the proposed merger of France Retail with Teract.
- This plan will likely outline a dilutive €500m investment in the operations from Teract/Intermarché in order to boost earning and thus enterprise value of the merged entity. Casino will highlight they can’t do the necessary investment and via the new merged entity overall value increases.
- For their consent, we expect the TLB and Quatrim bonds to take a small hit, so as to count as impacted party under Sauvegarde, but to come out largely unscathed.
- The consent of the Perps could also be bought for only a few cents.
- This would create several impacted classes voting in favour of CGP’s plan, setting the bonds up for a x-class cram-down. Bonds could be asked to equitise a significant proportion of their exposure, diluting Rallye, Kretinsky and the shares Fimalac are secured over.
- As we’ve said before, we expect Jean Charles Naouri to seek to retain control of France Retail. So there would have to be a fresh equity injection into CGP, which he would likely be fronting. Alternatively, this injection flows into the Merged Entity and “buys assets" (shares, IP, etc.) from CGP, leaving CGP behind - mostly for bondholders.
- Alternative plans could come from Kretinsky or, if that is not attractive enough, bondholders themselves.
- However, whether or not anyone besides Rallye will be able to put forward an alternative plan under this Conciliation and if therefore bondholders will have a choice between competing plans is a question we are trying to answer as there can be limitations. We expect Naouri to have done what he can to avoid this uncertainty and even to receive political support if such uncertainty were to spread to France Retail suppliers. The latter is in nobody’s interest and would provide the Naouri with a big stick.
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk