Rallye - tendering, replication and optionality

All,

Please find our all new model on Rallye here.

Rallye are opportunistically tendering for a portion of the unsecured Rallye debt, via a modified Dutch Auction, between 12.5% and 20% with proceeds of a new Fimalac financing of €82.4m. The new financing bears PIK interest of €+12% (cash pay € + 8%) with a maturity date of January 2024. Rallye will reduce current unsecured debt by €375-600m depending on tender price.

Replication:
To reflect the bonds upside from Casino shares, we could cheaply replicate our 1% of NAV position in the 2022 termed out bonds by buying call options with a €35 strike and financing those by selling call options at €55 (in 2023). A €32 call option in June 22, is quoted at c.€1.81, a €56 call option quoted at €0.07.

Optionality:
By holding on to the bonds however, we are benefiting from any future capital transactions in Rallye designed to keep Naouri in control, for which he is likely prepared to pay a premium. This position is not without risk, and at current prices, one is paying 15% for this optionality (we calculate the pair of options to cost c. 6%). More simply, we favour buying the equity outright, benefitting from any share movement below €35 a share and increased liquidity.

Therefore, we are going to tender our position at 20% and hope for the best. We will examine a long equity position in Casino post tender results.

Happy to discuss

Tomás

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