The second offer is from second largest shareholder, Czech businessman Daniel Křetínský, who is proposing a €1.1bn equity injection into Groupe Casino in exchange for “substantial reduction in the Group's gross unsecured debt by way of cash repurchases and conversions into equity.”

This implies Casino must restructure some if not all of its outstanding debt, with the group saying on Monday:

“As the completion of these transactions may require the approval of certain of Casino Group’s creditors, Casino Group is considering the possibility of requesting the appointment of conciliateurs in order to provide a framework for such discussions, which requires the agreement of certain bank creditors and bondholders.”

Also on Monday, Casino launched a consent request from certain bondholders to waive the event of default under those notes if the company was to enter a conciliation process. The consent solicitations will expire on 19 May 2023.

The group is also seeking consent from its lenders (under its RCF, Term Loan B facility, Monoprix Exploitation RCF and state guaranteed loan to Cdiscount) for a possible change of control under the offer from Křetínský. Reuters reported that Křetínský would have a 40% stake under his plan, but no official numbers have been given, and in any event, the equity splits are likely to depend on the outcome of negotiations between the various stakeholders.

There is also press speculation that some of the secured debt would move to the joint venture, which should require lender consent.

Arguably, Casino already requires some form of debt restructuring to address its debt burden, and to deal with significant short-term maturities.

It has €1.2bn of debt maturing in 2024 and €1.8bn in 2025. In addition, holding company Rallye has €1.9bn of secured debt due in February 2025. But given Casino’s high leverage a dividend blocker was put in place by creditors stopping funds being upstreamed to repay Rallye’s debt.

9fin showed in a recent report that in the last five years, Groupe Casino has burned through significantly more cash than it would have liked. Its €4.5bn disposal plan is now mostly done €4.1bn), but the cash from this programme was mainly used to plug FCF shortfalls rather than for debt repayments and to deleverage.

On 25 April 2023, Rallye entered into a mandats adhoc or ad hoc mandate proceedings in response to Casino possibly entering a conciliation process. Rallye’s debt sits above Casino’s and its secured debt sole collateral is their 48% share stake in Casino. But given the sharp drop in Casino shares, this provides less than 50% cover.

9fin clients can see Casino’s full capital structure.

Creditor group’s start to form

A group of holders in Casino’s Term Loan B debt has formed and is working with Latham Watkins, according to a source close to the group and a market participant. Historically CLOs owned most of the loan debt but some distressed funds have bought in, according to the market participant and the source close to the group.

The group holds the majority of the outstanding TLBs and it has more than 10 funds in it, the source close to the group said.

The source close to the creditors said the RCF lenders are also looking to appoint advisors. Attestor and Davidson Kempner have bought recently into the group’s RCF, the market participant added.

On 3 April 2023, Reorg reported that a group of Casino’s 2026 and 2027 bondholders are working with financial advisor Perella Weinberg to engage with the company on its planned merger with TERACT. The group is supportive of the deal but would like to elevate its claims in exchange for its support for the transaction. Reorg said the group includes five funds so far and a bondholder confirmed to 9fin it contains five to 10 core funds.

Perella did not wish to comment.

A second bondholder, the market participant and the source close to the creditors confirmed Perella is working with the group alongside Wilkie Farr as legal advisor. Wilkie did not respond for comment.

The company is being advised by Rothschild and Lazard (financial) and Weil, Gotshal & Manges and Gibson Dunn (legal), according to the market participant, the source close to the creditors and the source close to the company. They add Cravath, Swaine & Moore and Bredin Prat are working with the company as well on a specific project, but not on the global project.

The company said it did not wish to comment on which advisors it is working with. Rothschild did not wish to comment. Bredin Prat did not wish to comment.

Křetínský Takeover vs Joint Venture

On 24 April 2023, the Casino announced that it had received a conditional letter of intent for a share capital increase of up to €1.1bn from Daniel Křetínský, a shareholder of Casino with a 10.06 % stake through his affiliation to VESA Equity Investment S.à.r.l., as reported.

The company said it has acknowledged the proposal and if it was to accept it would lead to a change of control and dilution for existing shareholders, which “might be significant”, the company said. Reuters reported that this could lead to Křetínský’s stake growing to 40% (from around 10%). 

The proposed transaction is conditional on a very substantial reduction in the group’s unsecured debt by cash repurchases and conversions into equity and obtaining a waiver from secured creditors relating to the change of control of the group, among other things.

On 9 March 2023, the company said that it entered into an exclusive agreement to join forces with TERACT to create two new entities.

The first entity will be controlled by Casino and will focus on retail activities in France. The second new entity, which will be in charge of supplying local agricultural products, will be called TERACT Ferme France and will be controlled by InVivo.

The Financial Times reported that Casino’s CEO Jean-Charles Naouri and the Casino itself will own 60% and Teract will own 40% of the first entity. For the second entity Teract and its backers will own 60% and Casino will own 40%, the article said.

There is a question of much of Casino’s debt will be transferred to this new entity. The FT quoted Moez-Alexandre Zouari, CEO of TERACT saying Naouri promised to cap it to two times EBITDA. The FT said that analysts at Bryan Garnier expect €2.2bn of Casino’s secured bank debt to move to the new venture and warned that shareholders and unsecured creditors risk losing out.

The new combined entity will be provided with additional equity of about €500m in order to execute an ambitious growth plan, the company said. Casino and TERACT have been in discussions with investors to become shareholders of the combined entity.

On 24 April 2023, the company announced that Groupement Les Mousquetaires had joined the discussions on the new entity between Casino and TERACT, which Casino will own. Groupement Les Mousquetaires is also looking to extend their alliances with Casino by two years until 2028.

The new entity could transfer to Groupement Les Mousquetaires over several years at market value. This would be a number of stores in France that would generate a minimum of €1.1bn of turnover including VAT.

Groupement Les Mousquetaires could also become a minority shareholder in the new

entity. If this transpires, InVivo and Groupement Les Mousquetaires is considering an

investment of €300m in the new entity. This would be on top of the €500m of equity Casino and TERACT are intending to raise for the new entity.

The group said this JV is conditional on the parties signing a binding agreement, which may take place by the end of the second quarter.

Bondholder group response to JV

Perella Weinberg, the bondholder group’s advisors, argue that moving assets worth €2.5bn to €3.5bn out of the restricted group would exceed the permitted baskets under the New York law-governed bonds, and would therefore need approval from those noteholders as well as the term loans, both bondholders said.

A person close to the company said, in response to whether bondholder consent is required under the bond docs, “not to our understanding”.

In response to Casino’s JV proposal, the bondholder group – which holds the New York law-governed 2026 and 2027 notes – was potentially looking to put forward a proposal that would see their claims to be elevated to the French asset level or to have guarantees from it, putting them alongside the 1L term loan, according to the first bondholder.

The bondholders would also potentially seek a coupon uplift, but would be willing to take a small haircut possibly in the 10% region to get a deal through. Such a proposal would also be beneficial for the other non-New York law-governed bondholders, as it would facilitate the stabilisation of the group, the first bondholder said.

Under this proposal, Casino would not be incentivised to allow its other SUNs left behind at the old group, notably its 2024 notes, default, the bondholder continued, as this would potentially result in an insolvency procedure. There could be a potential claw back under French law if it can be argued that it was foreseeable the group would go into insolvency when the transactions were undertaken.

The first bondholder and the market participant close to the situation however were sceptical about whether consent from the bondholders is even required. “The thesis [of the bondholder group] is a bit stretched,” said the second bondholder, who noted that their position is that Casino’s assets cover you through the debt and the company does not need to go into a full fledged restructuring.

Nonetheless, the bondholder added that there is likely a deal to be struck that will work for everyone —  including the unsecured noteholders.

The person close to the company added: “The company regularly consults with bondholders on a variety of issues.”

Which deal has the best recovery? 

The banks are expected to be in the driving seat in choosing which option, given their security level. They will need to waive the change of control if the company goes for Křetínský’s offer. Under the JV plan, there is no information on how much debt will pass down into it and the purported 2x leverage cap does little to tell us what the recovery will be.

The person close to the company said the exact amount of debt that will pass down as well as the amount of new capital raised will “depend on negotiations.” They added: “We have told the market that we are considering a pushdown of the TLB and possibly a portion of the RCF.”

The source close to the creditors said the company had told them they are still deciding how much debt will be pushed down to the JV. There is also still the question of pricing on the facilities, they added.

For the unsecured bonds it is difficult to assess which offer will bring them a higher recovery given the lack of public information around the deals.

Křetínský’s offer would lead to a substantial haircut of some or all of the bonds, but we don't know by how much and in exchange for how much equity. The company did not wish to specify these amounts in response to questions from 9fin.

In any scenario, the source close to the creditors reckons it will involve a debt for equity swap as there is “too much debt at Casino”.

And there is also the question of implementation, if it fails to agree a consensual deal with the unsecured bonds. There is a chance that similar to Orpea, they may need to use a Sauvegarde process, with the senior secured creditors used to cram down the unsecureds.

Clément Genelot, equity analyst at Bryan, Garnier & Co told 9fin that Křetínský is offering a “huge capital increase, which is much higher than the merger with TERACT, aimed at paying down a much larger portion of the unsecured debt.” He said it looks like Kretinsky is looking to take control from Naouri and ally himself with the bondholders. 

“Křetínský is trying to really try to put bondholders in his game but at the end of the day J-C Naouri will have to choose and he is more likely to pick TERACT’s offer in my view,” Genelot said.  

“In theory both offers could possibly evolve together because both of them seem complimentary but the way in which Křetínský brought his offer clearly shows his offer is competing with TERACT’s one,” he added.

Under the JV option, which offers €500m of fresh equity, Genelot said the likelihood of the bondholders being repaid is quite low because the company would have to rely on selling its non-French assets, which are “not in the best shape” and will be tough to sell. 

Genelot said it’s too early to calculate recoveries for bondholders due to a lack of information however the 2024 Quatrim bonds should be able to be paid down from the proceeds from the sale of its stake in Brazilian cash-and-carry unit Assai.

Debt moves 

The market participant said trading in Casino’s debt has been “super active” with more liquidity in the bonds than the loans. The 2024 bonds tanked the most to 35 as there is a risk they may not get paid in a conciliation process, they said. The Quatrim 2024 bonds also dipped to 89/90 as they may have to be extended in a conciliation. They said the rest of the EMTN bonds are at 24. The 2026 and 2027 bonds are at 28/29. 

9fin’s data shows Casino’s debt quoted as follows: