@berendien: heb ze zelf ook, ben er nog niet uit wat ik er mee gaan doen, maar er speelt het een en ander:
Casino's "wedding cake" debt structure comes under scrutiny - IFR
18-Dec-2015 18:18:07
* Tiered holding companies scrutinised
* Putative new hybrid off the table
* Rallye credit lines and CP in focus
By Robert Smith and Laura Benitez
LONDON, Dec 18 (IFR) - Bond investors are paying closer
attention to the complex debt structure of France's Casino and
its parent Rallye, after a report from short-seller Muddy Waters
compared the French supermarket to a "highly levered hedge
fund".
The report published on Thursday followed hot on the heels
of Casino announcing a €2bn deleveraging plan on Tuesday, to
slim down its €8.5bn reported net debt position. Sources said
this sparked a short-squeeze on the equity and credit default
swaps of both the supermarket group and its controlling
shareholder Rallye.
The Muddy Waters report labelled this plan a "sham", while
Casino said the short-seller's research contained "grossly
erroneous allegations".
An analyst at a hedge fund described the group's corporate
structure as a "wedding cake", due to its multiple tiers of
holding companies.
Rallye owns 48.4% of Casino, meaning it is dependent on
dividends from the supermarket group to service its €2.8bn of
net debt. Rallye's majority shareholder is Fonciere Euris, which
in turn is owned by Finatis, both of which also have their own
debt to service.
Jean-Charles Naouri owns 92% of Finatis shares, according to
Thomson Reuters data.
JP Morgan credit analysts estimate that Rallye received
dividends of €171m from Casino last year, while paying out €89m
in dividends to its own shareholders.
BACK AGAINST THE WALL
While Casino is a France-domiciled supermarket group, it has
made big bets on emerging markets, which now account for 55% of
sales. One of its biggest markets is Brazil, where the
plummeting value of the Real against the euro is placing
additional strain on the group's balance sheet.
On Wednesday, ratings agency Standard & Poor's said Casino
"faces significant macroeconomic headwinds in Brazil".
S&P and Fitch both rate Casino BBB- (stable), meaning a
downgrade would push it into junk territory. The coupons on the
company's euro corporate bonds would step up by 125bp if this
were to happen, which would translate to €100m in additional
annual interest, according to a JP Morgan credit research note
published in October.
Market sources said that Casino's management have expressed
a strong commitment to keeping its investment-grade rating
during recent investor meetings, which had led some to expect it
to attempt to bolster its ratings via a return to the hybrid
bond market.
While hybrid bonds have discretionary coupons, Casino cannot
pay dividends if it skips payments on its hybrid. As Rallye
depends on cash distributions from Casino to service its own
debt, hybrid bondholders have added comfort that the coupon will
be paid.
However, on the back of Muddy Waters' report, investors said
that a new hybrid bond issue would now be a long shot, with its
€750m 4.87% hybrid bond selling off heavily from a 94 cash price
to 86.50 on Thursday afternoon. It recovered slightly to 88.80
on Friday.
"I suspect they may try and sell their residual stake in
Mercialys as well as selling Vietnam [instead]," said a credit
analyst at an asset manager.
"Casino always has had a bit of a financial engineering tint
surrounding it, but I think the report over-egged it somewhat."
Casino owns the Vietnamese supermarket chain Big C, while
Mercialys is a French real estate company.
UNDER PRESSURE
Others are less sanguine about the company's complicated
financial structure. The analyst at the hedge fund also flagged
commercial paper programmes at both Rallye and Casino as a
source of concern.
"The struggle to roll commercial paper put a lot of pressure
on Abengoa, a company that also had high exposure to Brazil," he
said.
Rallye had €376m outstanding under its commercial paper
programme as of December 11, according to Banque de France data,
while Casino had €1.34bn. The programmes can be maxed out to
€750m and €2bn, respectively.
Rallye's first-half results boast of a "very strong
liquidity situation", due to its €1.9bn of available credit
lines, which it could use to refinance commercial paper and
€1.6bn of corporate bonds it has outstanding.
But Rallye's unsecured bonds rank behind its bank debt, some
of which is secured on Casino shares. This means that drawing on
credit lines would subordinate holders of outstanding Rallye
bonds, reducing their recovery prospects in a default.
Some of the holding company's credit lines also have
covenants based on the value of its stake in Casino but,
crucially, several analysts said that these are based on book
value not the supermarket firm's share price.
JP Morgan credit analysts noted that the covenants have been
unchanged since the beginning of 2000 and that since 1992 Rallye
has never had to compute an impairment of its Casino shares.
Rallye's CDS has been a target for short-sellers throughout
the year, with the bid on its five-year CDS rising more than
300% from 190bp in early March to 817bp on Wednesday.
This shot up to 1,168bp on Friday, the day after Muddy
Waters' report, equating to a 21.5% upfront. This means that it
costs US$2.15m to insure US$10m notional of debt, plus a 500bp
running coupon.
Rallye's bonds have held up better over the course of 2015,
although the longer-dated notes capitulated on Thursday, with
the €500m 4% 2021 bond dropping more than 10 points to 80.50.
"There's no liquidity in them; it's unrated paper held by
French investors," said the hedge fund analyst. "It's tightly
held, but even the smallest seller could push the price down
dramatically."
(Reporting By Laura Benitez and Robert Smith.; Editing by
Philip Wright and Alex Chambers.)
((laura.benitez@thomsonreuters.com; +44 20 7542 2468;))
Keywords: CASINO BONDS/
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