Thu 11/10/2022 15:29 PM
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Relevant Documents:
Casino Senior Secured Notes due 2024
Casino Senior Notes Due 2026
Casino Senior Notes Due 2027
€1B Bonds due 2023 under November 2012 EMTN Base Prospectus
€900M Bonds due 2024 under December 2013 EMTN Bond Prospectus
€650M Bonds due 2025 under December 2014 EMTN Bond Prospectus
€900M Bonds due 2026 under December 2013 EMTN Bond Prospectus

France-headquartered retail group Casino, Guichard-Perrachon SA (Casino) has been on investors' radar as they consider how the company, which has proactively bought back debt in secondary, can address its tight covenants headroom and maturity wall. The group has continued with its planned asset disposal program but investors have also been concerned about the possibility of value leakage.

The analysis below addresses these points for a company whose restricted group leverage is at 6.9x, with €1.5 billion of debt due in the next 18 months followed by another debt wall of €1.8 billion in 2025.

The company has started selling down its stakes in its LatAm operations, and the use of proceeds covenant under the high-yield unsecured bonds documentation suggest that proceeds can be used to redeem EMTN bonds, the Segisor credit facilities, debt under existing credit facilities, any secured debt and debt of non-guarantor restricted subsidiaries.

The issuer’s senior secured notes are trading near par while the unsecured notes due 2024 are quoted at 80 and the longer dated 2026 and 2027 unsecured notes are in the mid-40s.

We will review the potential options available to the group to raise liquidity, delever the business and/ or restructure its debt. We also discuss the risk of value leakage given the complex capital structure of the group, the pressure by Rallye SA (its largest shareholder) to pay dividends, and ultimately to enable Jean Charles Naouri (beneficial owner of Rallye) to retain control of the group.

There seems to be little appetite in the near term to jump straight into formal proceedings. Additionally, given the company’s varied creditor groups with diverse interests, an out-of-court reorganization may be problematic, while the ability to cram down dissenting creditors may support the use of French safeguard proceedings in case of a restructuring.

Mounting Pressure

While the drop in market prices has given the company an opportunity to buy back bonds at discounted prices (€105 million of secured and unsecured notes repurchased in open-market transactions since July), the net impact is relatively small in light of the upcoming maturity walls: €1.5 billion of debt due in the next 18 months (including €720 million of secured bonds issued by Quatrim SAS and €560 million of unsecured notes), and another €1.8 billion maturing in 2025 (including €1.4 billion term loans).

After a tender offer in October, in which €154 million of notes due 2023 were repaid, there is €186 million of debt to repay in 2023.

This debt maturity schedule contrasts with a liquidity position estimated at about €1 billion, composed of €403 million of unrestricted cash, €102 million deposited in segregated accounts dedicated to debt repayments and €605 million available under the company’s revolving facility.

Reorg estimates that the group’s core retail operations in France have not generated meaningful free cash flow since at least 2016, especially after financing costs, and a reversal of this trend appears unlikely.

The leverage metrics are elevated, with a secured leverage and a leverage at the France Retail+ E-commerce perimeter (as according to covenant definitions) at 2.72x and 6.9x, respectively.

In light of this, the company’s capital structure appears unsustainable and the company needs to take action to address its upcoming debt maturities and overall leverage within the group.

Casino’s main option is to continue to sell assets, even if the macro-economic environment has sensibly deteriorated in 2022 and execution risk has risen. Having achieved €4 billion since 2018, the group targets at least €1 billion by the end of 2023, including the recently announced sale of a stake worth €500 million in the Brazilian retailer Assai.

The financial pressure on Casino is increased by the substantial debt at the holding company Rallye (Casino’s largest shareholder) which primarily relies on dividend payments from the group to address a February 2025 maturity wall of about €2 billion under the term-out plan of its debt agreed in its French safeguard proceedings, of which €1.4 billion is secured on Casino’s shares.

Capital Structure

Casino group has a complex capital structure. The group has secured bonds within a financing silo at Quatrim SAS (a subsidiary holding most of the real estate of the group which are ring-fenced to secure the Quatrim bonds), unsecured bonds issued directly by Casino (including bonds issued under its EMTN program), and secured and unsecured credit facilities at subsidiaries.

As of Sept. 30, the “France Retail + E-commerce” perimeter had approximately €5.7 billion of debt, including €1.425 billion secured term loans and €720 million of senior secured bonds issued by Quatrim. There are also €1.5 billion of unsecured bonds issued under an EMTN program, €925 million of high-yield senior unsecured bonds issued, a €150 million credit facility issued at Segisor (a holding company for some of the equity interests in the LatAm assets) and €170 million of unsecured credit facilities incurred by Monoprix SAS, an operating subsidiary.

Casino’s LatAm subsidiaries, which are only 41% owned but are consolidated into Casino’s financial statements, have €3.5 billion of debt. Casino’s equity interests in the LatAm subsidiaries are held through Segisor and Tevir, both of which are included in the restricted group for Casino’s high yield bonds documentation. The LatAm operating subsidiaries are however outside the restricted group.

The most recent organizational structure and position of various debt within the Casino group as disclosed in the final offering memorandum for the group’s unsecured bonds due 2027 is below.

Rallye Restructuring

Any consideration of the overall debt at the Casino group cannot ignore the implications it would have for the debt held at Rallye SA, Casino’s main shareholder with a 52.3% equity interest.

Rallye entered into French safeguard proceedings in May 2019 alongside Fonciere Euris, Finatis, Euris, and two affiliates. Rallye is majority owned by Fonciere Euris, having a 57.9% stake. Finatis owns 90.8% of the equity interests of Fonciere Euris, while Finatis is in turn owned 92% by Euris, which is beneficially owned by Jean Charles Naouri.

Under the plans approved by the court in March 2020 and amended in May 2022, repayment of €3.8 billion of Rallye’s debt and €733 million debt of its holding companies, are expected to be repaid from dividends from Casino, proceeds of non-strategic asset sales by Rallye, and refinancing options. Approximately €2 billion of Rallye’s debt, including €1.4 billion secured on Casino’s shares, is expected to be repaid in February 2025.

The debt profile of Fonciere Euris, Finatis and Euris are HERE, respectively.

The holding structure above Casino is summarized below:

Rallye’s debt maturity profile, as communicated by the company in May 2022, is below:

Casino Financial Covenants

The group’s RCF provides the financial covenants that bind the restricted group under the financing documents for the high-yield bonds and senior credit facilities, with a failure to comply with the financial covenants resulting in an event of default. The RCF requires quarterly compliance with a secured gross leverage test (net of cash held in segregated accounts) of 3.5x and interest cover ratio of 2.5x.

In line with EBITDA deterioration, down almost 19% between June 2021 and June 2022, headroom under Casino’s leverage covenant test has tightened significantly, from about 25% in recent quarters to only 9% at the June 30 test, according to Reorg estimates. Headroom improved at the Sept. 30 test, partly because of underlying earnings improvement, but mostly as a result of receipt of part of GreenYellow sale proceeds. As of Sept. 30, LTM covenant EBITDA fell 11% year-over-year to €773 million.

As of Sept. 30, Casino’s secured gross leverage was 2.72x as reported (from 3.19x as of June 30) while interest cover ratio was 4.09x as reported (from 3.54x as of June 30).


Based on the company’s track-record of negative free cash flows after financing costs and the deteriorated economy, Casino’s liquidity position appears inadequate and the company needs to step up its asset disposal program and/or seek other sources of liquidity.

The company claims to have liquidity at its French operations of €2.5 billion as of Sept. 30, primarily composed of €403 million in unrestricted cash and €2.0 billion under the RCF. Because of drawing limitations under the RCF, Reorg calculates total liquidity as of Sept. 30 to be closer to €1 billion, consisting of the unrestricted cash and €605 million available under the RCF. There is also €268 million of cash in segregated accounts as of Oct. 27 (€77.5 million as of Sept. 30).

In recent years, cash burns were driven by the high level of non-recurring and restructuring costs, disappointing earnings and the high level of financing costs. In the last twelve months, per Reorg estimates, free cash burn before interest payments amounted to €217 million and €515 million after interest payments.

The cash balance was broadly stable over the third quarter, suggesting that the €350 million of gross proceeds from the Farallon Capital transaction were offset by repayment of the outstanding amounts drawn under the RCF (€240 million as of June 30), bond buybacks and eventual cash burns.

The table below is a summary of the company’s potential sources and uses of cash in the next two years.

The following table is a summary of cash flows at the French perimeter.
(Click HERE to enlarge.)

Asset Disposals

Asset Sale Program

To shore up liquidity and address the group’s debt burden, Casino has committed to an asset disposal program, targeting disposals worth at least €1 billion by the end of 2023, including the recently announced plan to sell a stake in Assai worth €500 million. This comes after the group has achieved disposals worth €4 billion since 2018.

As we discuss below, Casino’s stakes in its LatAm business is worth about €2.4 billion and are some of the group’s most liquid assets. Other key assets are the 65% stake in the French e-commerce platform Cdiscount, worth about €645 million and real estate assets, worth about €1.2 billion.

Also, given the steps taken by the company’s board in France recently, with the launch of a process to regroup all food retail entities in France under a single holding company by year-end, the possibility of sale of a minority stake in the core French assets should not be excluded.

A summary of the group’s asset base is below:

As summarized in the table below, the company’s disposal program has yielded €4 billion since its launch in 2018. It includes €1.6 billion for sale and lease-back transactions on stores’ real estate, close to €650 million for the discounter Leader Price, €200 million for the stake in Floa Bank (fka Banque Casino), and more recently €600 million for the sale of GreenYellow.

LatAm Assets

Casino’s stakes in the Brazilian retail groups GPA and Assai and indirectly in the Colombian retailer Grupo Exito are a key tenet of the disposal program. The three equity stakes are estimated to be worth €2.7 billion based on current share prices.

The first step in monetizing those stakes was announced on October 27, with Casino seeking to sell a stake in Assai worth €500 million. The next key step will be the ownership structure reorganization process at GPA and Exito, announced in September and is expected to be completed by the end of first half of 2023.

Currently Casino directly owns 41% of GPA, Brazil’s 3rd largest food retailer, which itself owns 91.5% of Grupo Exito. Seeking to unlock value, GPA’s intention is to spin off 83% of Exito shares that it holds to its shareholders, resulting in a direct holding in Exito by Casino of about 34%. GPA will retain a 13% direct stake in Grupo Exito, which could be monetized at a later stage.

An illustration of the corporate structure changes transaction is below:

When the reorganization happens, which will see Exito’s free float significantly increase from the current level of 4%, the combined market value of Exito and GPA could be worth much more, according to GPA’s management. When Assai’s spinoff occurred in 2021, resulting in Casino owning directly 41% of Assai, the combined market value of GPA and Assai, rose by about €1 billion.

Before the spinoff completion, Grupo Exito is expected to distribute a dividend to its shareholders, though there are no indications that this would be upstreamed to Casino.

GPA also owns a 34% stake in Cnova worth €364 million at the current share price. Earlier this year, GPA’s management said it is willing to sell it but was waiting for a better price. Cnova’s current share price of €3.10 is its lowest level since November 2020. Also, since Casino directly owns 65% of Cnova’s shares, any potential acquirer of GPA’s stake would not exert any control over the business decision making process.

The current market value of Casino’s stakes in LatAm is summarized below:

Use of Asset Sale Proceeds

Unsecured High-Yield Bonds

In the event of any asset sale of any member of the restricted group (including sale of equity stakes in the LatAm business by Tevir and Segisor) the asset sale covenant under Casino’s senior unsecured bonds due 2026 and 2027 (Unsecured high-yield bonds), which are the same, allow proceeds of such assets sales (except proceeds of the ring-fenced assets securing the Quatrim bonds) to be used to redeem (at its option) the existing EMTN bonds, the Segisor credit facilities, debt under existing credit facilities, any secured debt and debt of non-guarantor restricted subsidiaries. There is no stipulation under the Unsecured high-yield bond covenants that repayment of such debt must be at no less than par, which means if Casino can successfully negotiate repayment of such debt at less than par, asset sale proceeds can potentially be used to reduce those specified debt for less than par.

The proceeds can be applied to repay any debt that is pari passu with the unsecured high-yield bonds, subject to such repayment being made at no more than par, but a pro rata offer must be made for the applicable Unsecured high-yield bonds at least at par.

Asset sale proceeds can also be reinvested in the group’s business, including in capex requirements, or deposited into any segregated account if specified under the relevant financing document.

Where proceeds are not applied at all or not fully applied for debt repayment or reinvestment, such proceeds will constitute excess proceeds. Once all excess proceeds exceed €50 million, Casino is required to make an asset sale offer for the relevant unsecured high-yield bonds and other debt that is pari passu with the unsecured high-yield bonds on a pro rata basis, with repayment of such unsecured high-yield bonds being made at par and the other pari passu debt being repaid at no more than par.

Alternatively, a carve-out from the definition of “Asset Sale” in the documentation for Casino’s high-yield bonds (see para (ix) of the “Asset Sale” definition of the unsecured bonds 2027 for an example) allows proceeds of any asset sale (other than the ring-fenced assets for the Quatrim bonds), to be used to make restricted payments subject to capacity under the 3.5x leverage ratio-based restricted payments basket. Reorg estimates that as of Sept. 30, Casino’s covenant leverage under its high-yield bonds to be 6.9x, meaning there would be no capacity to make payments from such asset sale proceeds if net leverage remains at that level.

Proceeds of any single disposal not exceeding the greater of €50 million/5% of LTM EBITDA do not have to be applied for debt repayment or reinvestment, but can potentially be used to utilize capacity under restricted payments covenant.

Quatrim Bonds

In addition to same terms for asset disposals in the unsecured bonds documentation, the Quatrim bonds include a covenant specific to disposal of the ring-fenced assets. Proceeds of disposal of any ring-fenced asset can only be used to redeem the Quatrim bonds or if not used, must be deposited into a segregated account pledged for the benefit of the bondholders until applied to redeem the Quatrim bonds.

As with the unsecured bonds, para (ix) of the “Asset Sale” definition allows proceeds of disposals of assets of the group that do not form part of the Ring-fenced assets to be used for making restricted payments if there is capacity under the 3.5x leverage ratio-based restricted payments basket.

Existing Credit Facilities

The disclosures on Casino’s RCF in the 2027 unsecured bonds offering memorandum (issued in April 2021) about prepayments from disposal proceeds states that the group has mandatory prepayment obligations from proceeds, subject to exceptions, including de minimis amounts. No prepayment or cancellation of commitments under the RCF will be required from disposal proceeds if it would result in commitments under the RCF and “other committed corporate credit facilities” that mature on or after the RCF to be less than €2 billion. While “other committed corporate credit facilities” is not defined, we have assumed it applies to re-drawable credit facilities. Currently, the RCF is undrawn so no prepayment will be required.

There is insufficient disclosure about the asset sale covenant in Casino’s new term loan facilities, so we are unable to determine what (if any) mandatory prepayment requirements will apply.

Under the Segisor credit facility, mandatory prepayment of the facilities will be required from proceeds of disposal of shares held in certain LatAm subsidiaries.

Otherwise, we do not have sufficient information to determine what (if any) of the group’s financing arrangements may require proceeds to be applied to reduce debt.

EMTN Bonds

The EMTN bonds are not subject to most high-yield bond restricted covenants, other than a negative pledge. There are no restrictions on asset sales or the application of proceeds from any asset disposal under the EMTN bonds, meaning the restrictions on application of such proceeds will be as provided under the terms of the high-yield bond documentation or any other financing documents of the group.

Debt Restructuring

While a debt restructuring doesn’t appear to be a primary option for the group, investors acknowledge that there might be a need for some debt workout at Casino in light of its heavy debt burden, which might not be adequately and timely addressed by the asset disposal program. There are some legal routes under French law which the group could consider.

In the short term, it is clear that there are potential avenues for raising liquidity through the group’s asset disposal program. This coupled with the prospect of Casino’s cash flow improving as well as debt maturities likely not causing a real issue for the retailer until 2025, may mean that there is little incentive for the company to take any immediate steps to tackle its highly levered capital structure, particularly without any triggers.

In this context, given the close ties between Casino and Rallye and the significant debt at Rallye which is expected to be repaid from dividends upstreamed by Casino, it is unlikely that Casino’s largest shareholder would be willing or interested in initiating any French legal process be it formal or informal which could jeopardize Rallye’s financial position and consequently their ownership stake in the group. For example, it is anticipated that any safeguard proceedings (see below) could “block” funds in Casino and limit leakage such that dividends to Rallye would be stopped. As Rallye is reliant on the dividends it receives from Casino, this route does not seem viable in the near term. Similarly, in the context of informal “pre-insolvency” proceedings such as mandat ad hoc and conciliation, it is unlikely that Casino’s creditors would be agreeable to payments being upstreamed out of the group, making a debt restructuring in the short term unlikely.

The longer term scenario may be different. To the extent that Casino’s liquidity does not improve and the group’s asset disposal program cannot adequately address the significant debt within the group, the company’s key stakeholders may have no option but to look to the available legal routes under French law, particularly to address the retailer’s maturity wall or to avoid a covenant breach.

Alternatives to Safeguard Proceedings

In light of the close relationship between Casino and Rallye, which entered into French safeguard proceedings in May 2019, there is a strong argument to suggest that Casino could face a similar fate. While ultimately this could be a possibility, Reorg’s view is that French mandat ad hoc and/or conciliation proceedings could be used in the first instance to try to address any potential difficulties Casino may face in the longer term.

Aside from the fact that both of these measures are preventative in nature, in Casino’s case there seems to be little downside in pursuing these methods versus the more formal safeguard or accelerated safeguard proceedings. Indeed, mandat ad hoc and conciliation proceedings are always a precursor to either the opening of accelerated safeguard or financial accelerated safeguard proceedings, to the extent unanimous agreement cannot be reached. Creditors are also likely to prefer this route, not least because any form of safeguard proceedings will cram down dissenting creditors. A similar approach has been followed in recent cases such as Vallourec and Pierre & Vacances. More recently, French care home operator Orpea entered into a second round of conciliation proceedings, although it remains to be seen whether it will also need to use accelerated safeguard proceedings to push its workout plan through.

To the extent that such informal proceedings ultimately lead to the opening of safeguard or accelerated safeguard proceedings, it is unlikely that a traditional term out of the debt as was undertaken under Rallye’s safeguard plan will be repeated following a reform of the restructuring and insolvency laws in France in 2021, under Ordinance 2021-1193. The legislation limited the application of the “term out” tool for secured creditors and also introduced accelerated safeguard proceedings. We note that in Rallye’s case, lenders with the benefit of a share pledge secured on Casino’s shares received better treatment due to their ability to access Casino’s future dividends through their security interests. It is anticipated that the ability of secured lenders to access future assets of a debtor will be limited as a result of the 2021 reform.

As previously mentioned, any safeguard plan at Casino would have to take into consideration the impact on its ability to upstream dividend payments to Rallye, a major source of funds considered for debt repayment under Rallye’s safeguard plan. The combination of these factors means that there is less of an incentive for Casino to jump straight into formal in-court proceedings.

Mandat ad hoc Proceedings

Mandat ad hoc proceedings are an out of court process, available to debtors who are cash flow solvent i.e. able to pay their debts when due, upon request of the debtor. The procedure provides a framework under which a mandataire ad hoc - effectively a restructuring practitioner (appointed by the President of the Commercial Court) can assist the company in negotiating a voluntary arrangement with its main creditors and stakeholders with a view to reaching a consensual agreement. Unanimous consent is needed to implement any plan, with the mandataire’s role ending to the extent an agreement is reached.

The advantages of mandat ad hoc proceedings in the context of Casino are that they are confidential, informal, flexible and effectively contractual.

As a “pre-insolvency” tool, they can be used ahead of time, providing eligibility criteria are met. Management can also continue to run the business (with the support of the mandataire) providing stability, which is important given Casino operates in the food retail sector. While any potential consensual restructuring negotiations can be done outside of using any specific process, the “formalization” of the process through appointment of a mandataire may give some comfort to Casino’s creditors as to the involvement of a neutral party overseeing the negotiations (given the background and relationship it has with Rallye) without committing to a full court process. The other benefit is that the proceedings are not time limited.

The main difficulty with the process is that approval for any restructuring plan needs unanimous consent - there is no ability to cram down dissenting creditors. For Casino, this could be problematic in light of its complex capital structure and varied creditor groups with diverse interests, some of whom may also hold positions in the debt at Rallye.

Other beneficial features of mandat ad hoc include the fact that the opening of proceedings do not trigger an automatic stay, for example in relation to demands for payment and enforcement action although creditors that have accepted to take part in the process usually also agree to abstain from taking any action while the proceedings are ongoing. That being said, the debtor is still able to request the rescheduling of its debt. The mandat ad hoc proceedings are not listed as an insolvency procedure for the purposes of the Recast Insolvency Regulation.

Conciliation Proceedings

Similar to mandat ad hoc, conciliation proceedings are another “pre-insolvency” out of court process which are available to debtors facing legal, financial or economic difficulties (which are actual or foreseeable), again provided they are solvent or have not been insolvent for more than 45 days. A conciliator is appointed to help facilitate negotiations with creditors and other key stakeholders with a view to reaching a consensual agreement to resolving the company’s difficulties.

Unanimous consent is also needed in order to approve any restructuring plan. Once agreed, the plan can either be acknowledged by a judge of the Commercial Court (accord constate) or formally approved by court judgment (accord homologue).

Conciliation proceedings may also prove beneficial to Casino because the process is confidential and flexible. Again with this procedure, company directors could stay in place and the conciliator function would likely provide some comfort to the creditors during the negotiation process. Additionally, if unanimous agreement on any restructuring plan was obtained, sanction of the plan by the court would also give protection to any new money providers and protection against clawback (antecedent) transactions.

The main drawback of using this tool is the same as mandat ad hoc proceedings - the process requires unanimous consent which is likely to be difficult given the capital structure and diverse creditor base.

The benefits of a conciliation proceeding may be constrained by a five-month time limit within which agreement must be reached, placing significant time constraints on the negotiations. However, there is no limit on the number of conciliations that a debtor can enter into. While there is no automatic stay on enforcement (akin to mandat ad hoc proceedings), if during proceedings a creditor serves a demand or brings an action against the debtor, the court has the power to grant the debtor a grace period of up to two years pursuant to article 1343-5 et seq of the French Civil Code. Conciliation proceedings are not listed as an insolvency procedure for the purposes of the Recast Insolvency Regulation.

One of the main differences between the mandat ad hoc and conciliation and a strong advantage of the latter process is that in any court‐approved agreement resulting from the conciliation, creditors benefit from a certain level of protection against future clawback risks and any new money injected in such agreement benefits from a privileged status if the debtor subsequently files for insolvency.

Further information on French accelerated safeguard proceedings are HERE.
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