Casino - end of the aisle - Positioning
All,
Please find our updated analysis on Casino here. . We have created an additional tab with a recap of the latest cleansing presentation.
All,
Please find our updated analysis on Casino here. We have created an additional tab with a recap of the latest cleansing presentation.
Three weeks ago on our webinar, we discussed how hard Casino's opening gambit would hit creditors and that the fundamental value we all attached to the business would not be reflected in bondholder recoveries. As it happens it has come slightly different yet. The operating performance and factual leverage, as released on Monday, put even a healthy valuation out of bondholders’ reach. Not inclined to beg for alms at the end of a process during which we won’t be earning interest either, we’ll be looking for bids.
Investment Rationale:
- We are exiting our Casino position in the 2027s, which was a 1.4% long at May month end. Our thesis that Naouri would postpone Sauvegarde in the immediate term has proven incorrect. More importantly, the underlying performance of the retail business is worse than our model.
- We see limited value for the HY and EMTN bonds in any restructuring scenario, and although we can make the case that the value breaks in the unsecured bonds, there are limited opportunities for bondholders to protect their position.
- We may revisit Casino to take a position in the Quatrim bonds, but at this stage, we are exiting the name and will wait for any announcements following the
end of this week.
Proposals made by Casino:
- We were ready to publish our note and Casino released a statement proposing debt write down of all of the unsecured and some of the Term Loan and RCF. Casino are proposing to write down between €1-1.5bn of secured debt in order to reach a net debt/EBITDA of 1.0x by FY25.
- THe level of write down is greater than we had anticipated and snuffs out any slimmer of hope of some recovery for the bonds.
- The senior secured notes issued by Quatrim would be rescheduled and repaid by the proceeds from the divestment proceeds of the real estate assets securing such notes.
- Casino acknowledge they need to coordinate with any potential new money, but in any event, the current shareholders of Casino will be massively diluted and Rallye will no longer control Casino.
New Money Requirement:
- The providers of any new money requirement, and we believe it is greater than the €900m presented by the Company, will seek to equitise as much debt as possible. Even if bondholders provide some of the new money, it will also be in their interest to attach the value to the new money, instead of reinstating existing debt. And if a bondholder group can supply all the fresh cash, but is too concentrated, it won't need the remaining bondholders either.
- Several parties have indicated a willingness to participate, including Fimalac with a €150m participation as part of the Křetínský/Vesa proposal. Additionally, Intermarché has indicated a willingness to contribute €100m in fresh equity.
- The 3F proposal. (Xavier Niel, Matthieu Pigasse and Moez-Alexandre Zouari) proposed an equity raise at CGP of c.€1.1bn, with €200-300m would be invested directly by them. The source of the balance is unknown but was rumoured to be subscribed by partners, including creditors via debt-for-equity swaps.
- We are firmly of the view that the requirement is greater than €900m, and likely to be c. €1.4bn, which is a significant equity cheque to take control of Casino France.
Very Slim Opportunity:
- Bondholders' best chance is a combination of a) bondholders being willing to provide and prove to fund for fresh cash and b) other parties, including Vesa and 3F, are unable to muster all that is necessary and need to fall back on the broad majority of bondholders. Neither is likely and each on its own is insufficient to protect the bonds.
- A return of reverse factoring lines following a future Sauvegarde looks reasonable, but from experience can take time. Perhaps the involved banks can promise to extend LoCs in return for better treatment.
- Finally, there is a chance that Kretinsky would be content with only Cdiscount. If so, perhaps 3f and the bonds can pool cash. But even then the value would attach to the fresh investment.
Risks Aplenty:
- Unless a broad majority of the bonds can mount a bid for the company with over €900m of fresh cash by the weekend, we see bonds begging for alms in the end, in return for not filing in the US perhaps. That would be an upside scenario.
- The value could be found to break in the Secured part of the capital structure, which would put the bonds well and truly out of the money. France operates an absolute priority concept and bonds would have to buy out creditors ahead of them to keep their position. We think that is very unlikely.
- All of this is played out on the background of poor underlying performance, which further hinders anyone considering injecting additional capital into the Casino structure. Therefore, the likely providers of capital are Vesa/Fimalac and 3F, who have all been party to private information over the last couple of weeks and months.