Casino: All the Pieces Matter

Glenn Zahn – Senior Analyst - Special Situations
Amarveer Singh – Senior Analyst - European Food, Retail and Gaming

  • Casino bonds have sunk significantly since the release of FY22 results on 10 March, in which cash flow was less than forecasted. Bonds took another leg down in late March when the audited statements revealed an overdraft of €239 mn, which was not disclosed earlier. The markets quickly priced in a liquidity crunch and an insolvency event. We expect the company to approach creditors with a distressed exchange offer using France’s Conciliation Procedures.
  • Chairman and CEO, Jean-Charles Naouri plays his last hand with the proposed merger with Teract SA, a garden/pet center and food distributor run by former acolyte Moez-Alexandre Zouari. We believe the transaction makes perfect sense, as it enhances Casino’s valuation while giving Teract direct access into Casino’s retail base with the option to purchase Casino assets on the cheap if it becomes insolvent. The recently announced involvement of France’s third largest grocer, Intermarche adds credence to the transaction, and offers purchasing synergies and additional equity.
  • Czech-billionaire, Daniel Kretinsky has proposed a takeover offer for Casino with a €1.1 bn equity infusion (of which €750 mn would be his own), subject to a buyback and/or conversion to equity of Casino bonds. This would reduce Naouri to a minority shareholder leading some to doubt it’s feasibility, but it may be Naouri’s only graceful exit.
  • Covenants governing €925 mn of Senior Notes should play an important role in determining how the transaction is structured. To make the transaction more palatable for Teract, we expect Casino to attempt to transfer key assets outside of the Restricted Group although this would be subject to the J. Crew Blocker. In this report we explore several avenues that the company can take to achieve this while remaining in compliance of covenants.
  • We expect a distressed exchange in some form to alleviate the burden of €2.3 bn of unsecured debt and €553 mn of SSNs. Theoretically, Casino could eliminate this debt at a market value at €1.1 bn, but realistically we expect an offer to come at a slight premium to current prices with a cash and equity incentive. To achieve this, Casino could tap into over €1.5 bn of assets relating to the remaining stakes in CNOVA, LATAM and Green Yellow, and real estate assets within the French perimeter, or use the proceeds from Kretinsky.

Our Buy recommendations on the TLB, SUNs and EMTNs are based on our analysis which suggests that in our base case, value breaks just above the current trading prices of the SUNs and EMTNs at 41%. Thus, the TLB represents “a no brainer” for loan investors as it is over a turn of EBITDA in the money. TLB holders are also in a very strong negotiating position as the required consents needed to move assets should require a supermajority. Thus, TLB investors could easily find themselves in a superior position in the new Casino NewCo and possibly with fixed charges on retail assets. We see over 20 points of upside in this investment, with downside risk rather limited given the security.

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