Rallye - At the money option

All,

Somewhat sooner than we had anticipated Naouri has begun bidding for the unsecured creditors of Rallye SA at steep discounts.

While leverage increases ahead of the unsecured bonds, leaving them just at-the-money, their value break-even Casino share price drops from E 56 p.s. to E47 p.s. - where the company traded as recently as November 2019. For reference, a pre-pandemic / post-refinancing share price of E35p.s. would imply the bonds at 35c/E, or double today’s price.

We think there is scope for further such transactions as/when/if Casino shares continue to rise - not financed with unencumbered shares, but possibly on a second lien basis behind the secured banks.

At prices of 12.5% to 20% (on par+accrued) we are not inclined to tender our 2022 converts as part of this transaction but are considering it a material step forward in events and a test balloon for future tenders, which will have to be differently financed than this likely final bid, backed by the remaining unencumbered shares.

We think there will be a contingent of non-distressed funds who will be grateful to exit in this price range and so do anticipate Rallye to drop some E400m in leverage, made up of E90m in additional sr. secured (over casino shares) money replacing some E500m of unsecured bonds.

Happy to discuss.

Tomás

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E: tmannion@sarria.co.uk
T: +44 20 3744 7009

M:+44 7786 705 806
www.sarria.co.uk