Rallye/Casino - kick the can down the road

All,

Please find our updated model on Rallye here. We will update the Casino model post the Q3 (sales) results due to be released next Thursday 4th November.

Many analysts, including ourselves, have spent significant amounts of time and effort analysing the Casino structure, contemplating the sale of non-core assets in order to deleverage Casino and enable resumption of dividends. At a stroke of a judge’s pen, at the Paris Commercial Court yesterday put paid to that.

Deferment of Payment Plan

- The administrators overseeing the Safeguard plans of Rallye, Foncière Euris, Finatis, and Euris, requested that the payment dates under the safeguard plan be deferred for two years and extend the duration of such safeguard. This has removed the upcoming maturities of February 2023 and pushed the refinancing wall to February 2025.

- The request for deferment of the payment dates and consequent extension was made in the context of Covid 19 crisis and government measures. It aims to ensure the success of the safeguard plans.

Fimalac

- The Fimalac financing sits outside of the Safeguard, but Rallye and Fimalac have decided to extend by 1yr the initial 4yr maturity of the €210m bond financing granted in July 2020 that was used to repay the derivative liabilities entered into by Rallye and its subsidiaries. The extension ensures that the first maturity at Rallye is February 2025.

Impact on Casino:

- Technically this has no impact on Casino. Casino is not part of the safeguard and operates “independently” of Rallye. However, the reality is Casino dividends was the only source of repayments of the Rallye debt.

- The focus of Casino is likely to remain on deleveraging in order to enable dividends to resume. However, the time pressure of February 2023 has been removed and this gives Casino more time to sell down more of its non-core assets.

- The inability (or unwillingness) to list Cnova shares at an acceptable level is likely to linked to the extension of the Rallye Safeguard. There is now no time pressure on Casino to deleverage, and although we expect they will continue to seek to deleverage over the coming quarters they have removed guidance on the timeframe.

Positioning:

- With the underlying Casino shares trading off to 2021 lows of below €22, the recent weakness in the Rallye unsecured bonds is justified. However, recent weakness could also indicate some in the market were possibly aware of the application to defer the payment schedule.

- Ultimately, this extension has reduced the theoretical value of Rallye unsecured bonds, but given they had zero intrinsic value, the extension just postpones the refinancing risk of the secured Rallye debt. The extension allows more time for Casino to exit some non-core assets at more optimal prices without pressure from the need to provide dividends to Rallye.

- At Casino level, the extension has a marginally negative impact on Casino credit, as the impetuous to deleverage prior to 2023 has been removed. However, we don’t think it ultimately changes the deleveraging strategy at Casino.

- In relation to the Quatrim bonds at Casino, which become callable in November (next month), it makes refinancing marginally easier as Casino can commit to no dividends over the next 2-3yrs.

Happy to discuss.

Tomás

E: tmannion@sarria.co.uk

T: +44 20 3744 7009

M:+44 7786 705 806

www.sarria.co.uk

Tomás MannionCASINO, RALLYE