Rallye PIK implications.

All,

Rallye’s new PIK facility is good news as it constitutes no fundamental change in the ranking of liabilities, but extends the deadlines currently surrounding the deal with the derivatives parties of 50% at Rallye by June 2021, 50% at FE by June 2022 and the remainder by Dec 2023. So it allows Rallye to show the court that it will have the funding in place to survive the required 2 years after Sauvegarde, by terming out its most short term liabilities and providing it with the E15m of necessary funding during that time and beyond.

The PIK facility will be backed by a fiduciary trust over the same 8.73% of Casino shares as the derivatives deal it replaces and any dividends on these shares will be applied to the PIK. Apparently there is a desk out there claiming this PIK is Second Lien in nature. We are not reading any of that here and while we have not yet had the chance to consult legal experts on the matter, we doubt that a "fiduciary trust" gives much room for leakage. 

Subject to exact draw-down date, the PIK seems to mature in July 2024 - so well ahead of any termed out bonds, but after the current arrangement with banks.

It wouldn’t be a Naouri deal if it did not further enshrine his long list of indirect holdings into the covenants of the deal. 

Finally, we are further comforted by the identity of Mr. Kretinsky behind the bonds. He is a keen lawyer and investor, but his consistent attempts to buy major stakes in Metro of Germany and Casino last year point to a genuine fundamental investment, rather than one purely for benefit within a Rallye zero-sum game.

Caveat: The deal does tie up Casino shares (Rallye Assets) worth E350m for only a E233m Loan. We do not know if it can be pre-paid, although we assume it can - for a price, because the bank refinancing - 2023 maturity - may require such additional security / flexibility. We also do not know the interest on the loan.

Wolfgang