Casino bondholders seeking better terms in Teract tie-up

By Chiara Elisei

LONDON (Reuters) – Some holders of bonds issued by French food retailer Casino are working with financial adviser Perella Weinberg Partners to push for better terms should the company’s planned tie-up with smaller food firm Teract proceed, three sources familiar with the matter said.

    The investors, who hold some Casino bonds maturing in 2026 and 2027, are seeking to move quickly before details of the tie-up are agreed, the sources added.

The group includes around a dozen firms consisting of investors and hedge funds, one source familiar with the group said.

    Investors in loans to Casino are also in the process of mobilizing and lining up their own advisers, two of the sources and an additional source said, declining to be identified as the discussions are private.

    Casino declined to comment.

The moves by bondholders and loan investors signal the potential for a drawn out tussle between creditors amid uncertainty over Casino’s long-term financial health.

    Led by Jean-Charles Naouri, Casino, which has around 3 billion euros ($3.3 billion) of debt maturing between 2024 and 2025, said in March it was in exclusive talks to combine its French retail business with Teract, a company backed by billionaire Xavier Niel, seeking to reassure investors over its ability to generate cash and reduce high debt.

Analysts had expected it to use the cash it generates, and proceeds from asset disposals, to facilitate a refinancing, but its ability to do that has been thrown into question after generating much less cash than expected in the fourth quarter. 

FINANCIAL STRUCTURE

While Casino has not yet outlined the financial structure of its proposed joint venture and how much debt the new entity would carry, investors and analysts expect that the loans, which are senior to the bonds, would be moved into the new structure with their maturities extended.

    But to do this, Casino would require consent from loan holders, which is the reason why the latter are getting organised in advance to negotiate better terms with Casino, two of the sources said.

    Other debt being left out of the joint venture could have lower prospects to recover its full value. Without the profits generated by Casino’s retail activities in France – which would be part of the joint venture – there would be less cash to refinance or repay this debt.

    Casino does not require consent from bondholders to potentially push their holdings into the joint venture, according to two sources.

Some bond investors instead believe Casino will need their consent first to proceed with the joint venture, so that it can become an unrestricted subsidiary of Casino, the source familiar with the bondholder group said. Unrestricted status would allow the joint venture to potentially list on a stock exchange and receive capital from a third party.

The bondholder group is open to alternatives, including where their claims would sit once the joint venture is completed, but they are seeking better security and to unlock value.

    The first two sources added that under the 2026 and 2027 bonds documentation, Casino would require the consent of those bondholders if it wanted to pass on some cash generated from the deal with Teract on to Casino’s parent group, Rallye, to support the parent in its own debt negotiations.     

That could give investors some leverage in engaging with the company to get better terms in the proposed venture.

    In particular, the 2026 and 2027 bonds are currently unsecured, meaning they carry less protection, but investors are seeking to elevate their claims and gain secured status for the bonds in the new venture, said the first two sources.

    Casino loans’ price is currently quoted in the range of 70 cents on the euro.

    Meanwhile, its bonds maturing in 2024 and 2025 are trading at a distressed price, signalling investors believe it is unlikely they will be refinanced at their full value.

    Debt trading at a heavily discounted price of 70 cents or less is considered distressed, meaning the borrower may default on it in the near term.

Casino shares were trading at 6.7 euros on Friday and hit a record low of 5.6 euros in March, after Moody’s (NYSE:) cut its long-term debt rating further into junk territory. 

While few details of the deal with Teract have so far emerged, the new venture will receive about 500 million euros in new capital to allow it to “execute an ambitious growth plan”.

Casino and Teract said in a joint statement in March that discussions have already started with potential investors about providing the additional capital.

    The tie-up would create the French leader in responsible and sustainable retail activities, the statement added.