Casino bondholders seeking better terms in Teract tie-up - sources (updated)

Teract SA

15/04/2023 17:30

(Updates April 14 story to add details of bondholder group and
its plans in paras 3, 13 and 14)
    By Chiara  Elisei
       LONDON, April 15 (Reuters) - Some holders of bonds
issued by French food retailer Casino  CASP.PA  are working with
financial adviser Perella Weinberg Partners to push for better
terms should the company's planned tie-up with smaller food firm
Teract proceed, three sources familiar with the matter said.
    The investors, who hold some Casino bonds maturing in 2026
and 2027, are seeking to move quickly before details of the
tie-up are agreed, the sources added.
    The group includes around a dozen firms consisting of
investors and hedge funds, one source familiar with the group
said.
    Investors in loans to Casino are also in the process of
mobilizing and lining up their own advisers, two of the sources
and an additional source said, declining to be identified as the
discussions are private.
    Casino declined to comment.
    The moves by bondholders and loan investors signal the
potential for a drawn out tussle between creditors amid
uncertainty over Casino's long-term financial health.
    Led by Jean-Charles Naouri, Casino, which has around 3
billion euros ($3.3 billion) of debt maturing between 2024 and
2025, said in March it was in exclusive talks to combine its
French retail business with Teract, a company backed by
billionaire Xavier Niel, seeking to reassure investors over its
ability to generate cash and reduce high debt. 
    Analysts had expected it to use the cash it generates, and
proceeds from asset disposals, to facilitate a refinancing, but
its ability to do that has been thrown into question after
generating much less cash than expected in the fourth quarter. 
    
    FINANCIAL STRUCTURE
    While Casino has not yet outlined the financial structure of
its proposed joint venture and how much debt the new entity
would carry, investors and analysts expect that the loans, which
are senior to the bonds, would be moved into the new structure
with their maturities extended.
    But to do this, Casino would require consent from loan
holders, which is the reason why the latter are getting
organised in advance to negotiate better terms with Casino, two
of the sources said.
    Other debt being left out of the joint venture could have
lower prospects to recover its full value. Without the profits
generated by Casino's retail activities in France - which would
be part of the joint venture - there would be less cash to
refinance or repay this debt.
    Casino does not require consent from bondholders to
potentially push their holdings into the joint venture,
according to two sources.
    Some bond investors instead believe Casino will need their
consent first to proceed with the joint venture, so that it can
become an unrestricted subsidiary of Casino, the source familiar
with the bondholder group said. Unrestricted status would allow
the joint venture to potentially list on a stock exchange and
receive capital from a third party.
    The bondholder group is open to alternatives, including
where their claims would sit once the joint venture is
completed, but they are seeking better security and to unlock
value.
    The first two sources added that under the 2026 and 2027
bonds documentation, Casino would require the consent of
those bondholders if it wanted to pass on some cash generated
from the deal with Teract on to Casino's parent group, Rallye,
to support the parent in its own debt negotiations.     
    That could give investors some leverage in engaging with the
company to get better terms in the proposed venture.
    In particular, the 2026 and 2027 bonds are currently
unsecured, meaning they carry less protection, but investors
are seeking to elevate their claims and gain secured status for
the bonds in the new venture, said the first two sources.
    Casino loans' price is currently quoted in the range of 70
cents on the euro.
    Meanwhile, its bonds maturing in 2024 and 2025 are trading
at a distressed price, signalling investors believe it is
unlikely they will be refinanced at their full value.
    Debt trading at a heavily discounted price of 70 cents or
less is considered distressed, meaning the borrower may default
on it in the near term.
    Casino shares were trading at 6.7 euros on Friday and hit a
record low of 5.6 euros in March, after Moody's cut its
long-term debt rating further into junk territory. 
    While few details of the deal with Teract have so far
emerged, the new venture will receive about 500 million euros in
new capital to allow it to "execute an ambitious growth plan". 
    Casino and Teract said in a joint statement in March that
discussions have already started with potential investors about
providing the additional capital.
    The tie-up would create the French leader in responsible and
sustainable retail activities, the statement added.

 (Reporting by Chiara Elisei; Additional reporting by Silvia
Aloisi; Writing by Dhara Ranasinghe; Editing by Elisa Martinuzzi
and David Holmes)
 ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))