Casino refi plan - mixed news

All,

Progress in process, but not in substance. Winners / Losers / Pros / Cons / Detail / Motives / Implications on liquidity / Thoughts:

Winners:

- Short dated bonds (who are likely to be tendered in the future)

- The TSSDI’s with plans for capital structure fortification

- The equity with plans for capital structure fortification and a confirmation of resumption of dividends.

- Rallye stakeholders

Losers:- longer dated senior bonds of Casino who are going to be primed by the security package on offer to both the banks and the new secured bonds.
Pros:- The Company is confronting its capital structure and seeking to term out its revolver facilities / reduce short-term maturities.- 80% of banks are reportedly on board and there should be ample room for secured financing. - The confirmation of a dividend corridor resuming in 2021 provides clarity to the leakage expected.
Cons:- The plans confirm that the unsecured market remains shut to Casino.- 2023 bonds and beyond will be primed by the security packages.- The RCF banks are unwilling to take out the short dated bonds 2020-22 and are seeking security to extend their maturity. Note that our premise for originally investing in the 2021s was that those bonds be taken out by the RCFs –(which they might still have to be, if the new financing plans fail).- The proposed structure in itself does not create additional liquidity for the Company. We are assuming that the new RCF facility will remain undrawn, the new facilities of €1.5bn is not sufficient to take out as proposed the 2020, 2021 and 2022 bonds totalling €2.1bn. Coupled with this the likely FCF neutral (at best) prospects for the business, it will require further asset sales, as previously announced and/or the reopening of the Commercial Paper market.
Two tranches:B) A Secured Term Loan (term Loan B) and Secured bond (likely both secured) for a target amount of €1.5bn maturing in The Term loan would enjoy security (along side “Tranche A” - new revolving facility) over Casino France and the French holding Company holding the LATAM stakes. The Secured notes would have security over Immobiliere Groupe Casino, which itself owns c. €1bn of real estate value. - This tranche has not been launched yet, but Tranche A below is dependent on the timely raising of this tranche. Thus in terms of process the order of the tranches is reversed.- Purpose of these tranches is the tendering for bonds from 2020 to 2022 and thus the extension of those maturities to a year after maturity the proposed RCF in Tranche A below.
A) The second tranche is to replace and extend committed and largely undrawn facilities the Company has, which mature in 2021 and 2022. This tranche (Tranche A - New revolving facility) would be for €2bn with a maturity of October 2023. This does not improve the availability for Casino but would extend the maturity. - The RCF banks therefore would face only E500m of maturities ahead of them – unless the company finds other means to take those out and dedicate the RCF to purely corporate purposes.- The banks’ participation in the new syndicated revolving facility is conditional upon Casino raising at least €1bn by May
Dividends:The new facilities will include additional covenants in relation to Casino dividend policy:- Casino is proposing, starting in 2021, dividends equal to 50% of the cumulated underlying net profit over the period at the- Additional dividends would be subject to a debt/EBITDA ratio post distribution, which must not exceed 3.5x. (As of June 2019, this ratio was 6.4x).
So while the RCF banks seem to have established an order of events in which they would be the last to commit, the company’s cash balance appears tight unless it can sell further assets and avoid paying down the new facilities. Their suggested comprehensive security perimeter however (LatAm holding, Casino France, Real Estate group) seems to offer only limited options to do so. Thus proceeds from future asset sales would have to be offered first to the new facilities and would not automatically raise much needed liquidity.
Tomas is your Analyst.

Wolfgang