Thoughts on Rallye

All,

Further to our update earlier, some thoughts on the Rallye side of the news:

Positive:

- The company did not disclose more share pledges.

Negative:

- The E500m line from September 2018 is secured over the shares in Go Sport and over the shares of the entity holding the investment portfolio. Correction: it is not the beneficiary of the 8.7% of shares pledged via a structured finance arrangement in favour of derivative contracts.

- The 8.7% of shares secure another OFF-BS E273m of derivative contracts that we have not had in the model during its last iteration.

Conclusions:

- Applying the above news to the model, bondholders could expect - at current share prices - to receive 33c/E. However, the news of a failed Sauvegarde would send Casino shares down (some 50% of the stock coming up for sale) and so the bondholders would be the first to suffer from that erosion.

- In any Sauvegarde plan, some E1.9bn of secured debt would expect to be reinstated at or close to par. In the previously contemplated collapse of entities into one, bondholders would receive E10c. But it would leave Rallye with E2bn of debt and only if bondholders chose to equitise in that plan. Even so, the dividend burden on Casino would be of some E200m p.a. and significantly more if the bonds were termed out.

- In a term-out scenario, the interest + amortisation would likely be too much to carry for Casino after the interest holiday is over. Naouri is trying to convince the administrators that he deserves a chance to turn Casino around, but the plain arithmetic shows that he is unlikely to create sufficient value.

Conclusion of the conclusions:

- We have lost money today in our previously 1% position in the converts. Unless Naouri can convince someone to invest fresh cash and buy him back into the structure (strike a deal with the unsecureds, the sheer option value embedded in a term-out may turn out to be the best case for bondholders.

Tomas is your analyst.

Wolfgang