Codere - another restructuring due - fundamental problems compounded by Covid-19

All,

A full restructuring is required to ensure the survival of Codere.  

Even prior to Covid-19 we were cautious on the ability of the Company to refinance the Oct-21 bonds. We now expect a full blown restructuring is due in Codere. Although leverage wasn’t excessive on reported EBITDA levels, our analysis clearly showed that the market underestimated the CAPEX and license spend required to maintain the business going forward.  

With the closure of all their sites due to the Covid-19 lockdown, the Company has sought to find liquidity anywhere possible. They have drawn on their Super Senior Facility (€42m additional), borrowed an additional MXN500m (€20m) and deferred their coupon payments by a month due on 30th April. 

As of the end of April,the company had €130m in cash, €68m pro-forma for the additional borrowings, compared to €103m at year end. Given Codere would have generated some cash in January and February (c. 6m a month), the lock down for 1.5months has cost them €50m.  

Although restrictions are likely to ease over the coming months, large gatherings in halls and the openings of restaurants and bars are likely to be the last segments of the economy to re-open, the likelihood of Codere’s operations returning to cash-neutral status in the near term is low.  

For what it’s worth, Moody’s and S&P both downgraded the bonds in March to CCC with S&P further downgrading on the back of Codere’s use of the 30 day grace period.  

The previous restructuring was tortuous and long drawn out, with the scars still in people’s mind and the creditors still in the equity. Round 2 is about to commence. We are not getting involved.

Happy to discuss.

Tomas