Casino's parent Rallye placed under creditors' protection (updated)

Finatis SA

23/05/2019 20:40

* Casino shares slump before suspension, CDS hits record
high
    * Consistent concerns over debts at Casino and Rallye
    * The opening of safeguard proceedings is for six months
    * Casino says proceedings will not impact its strategic plan
 

 (Recasts with Rallye, Casino announcements)
    By Dominique Vidalon
    PARIS, May 23 (Reuters) - A Paris commercial court on
Thursday placed Rallye  GENC.PA , the parent company of retailer
Casino  CASP.PA , which is battling investor concerns over its
high debt, under creditors' protection for at least six months.
    The safeguard proceedings cover Rallye and its subsidiaries
Cobivia and HMB, as well as their parents companies Foncière
Euris, Finatis and Euris.
    "Following the persistent and massive speculative attacks
against the group's securities, the companies under safeguard
proceedings will, within the framework of these proceedings,
ensure the integrity of the group and improve their debt profile
in a stable environment," Rallye said in a statement.
    Shares in both Casino and Rallye have fallen by roughly 20
percent so far in 2019, and their slump on the stock market has
drawn the attention of some hedge funds.
    Casino and Rallye's Go Sport unit is not included in the
proceedings, which Casino said in a separate statement "will not
impact the ongoing execution of its strategic plan"
    Safeguard proceedings, which can last up to eighteen months,
aim at protecting companies that are not cash-flow insolvent
while giving them sufficient time to reprofile their debt.
    They suspend, pending the approval of a safeguard plan,  
the payment of debts arisen prior to the opening of the
safeguard proceeding.
    Shares in Casino and Rallye were suspended on Thursday,
fuelling speculation of a debt restructuring at the companies
controlled by 70-year old retail kingpin Jean-Charles Naouri.
    The suspended shares will resume trading on Friday.
   Casino, which is grappling high debts and a tough business
environment, fell 6.4 percent before being suspended, while
Casino's credit default swaps (CDS) hit record highs. 
   Casino, whose credit rating was further pushed into junk
status by Standard & Poor's in March and which was also
downgraded by Moody's in April, has embarked upon asset sales to
cut its debt and ease concerns over it and Rallye's position. 
    Casino is the main asset of Rallye, which has a 51.7 percent
stake. Rallye in turn is controlled by Fonciere Euris, Finatis
and Euris, all in the hands of Casino chairman and CEO Naouri.
    Naouri, who started his career in French government
ministries including finance, set up his own investment fund
Euris in 1987. He then moved into the retailing industry via the
Rallye company and became CEO of Casino in 2005.
    Naouri is widely credited for turning the French retailer
into an emerging markets powerhouse, which took control of
Brazil's top retailer Grupo Pao de Acucar in 2012.
    The price to pay, however, has been rising debts.
    Investors have also lamented the complexity of various
holding company structures set up by Naouri and have urged him
to simplify them.
    In 2015, short-seller Muddy Waters criticized Casino's
complex structure and accounting practices, saying it was
"dangerously leveraged", and managed for the short-term.
      
    FINANCING ISSUES
    Within the Casino group, dividends from Casino are used to
maintain Rallye's debt interest payments, which makes it hard
for Casino to reduce its gearing. 
    Casino shares held by Rallye are also pledged as collateral
to banks in order for Rallye to obtain more financing. So the
more Casino's shares fall, the less room Rallye has to move.
    In September last year, Rallye had bought more time ahead of
a key bond refinancing deadline as five banks granted it a new
500 million euro credit line.
    But recent downgrades by credit rating agencies S&P and
Moody's limit Casino's access to the bond market while Rallye
has already pledged all its Casino shares. 
    Earlier this month Kepler Chevreux cut its rating on Casino 
stock to "reduce" from "hold" and slashed its price target on
the stock, warning that Rallye, which has a negative Net Asset
Value, still faced major concerns over financing.  urn:newsml:reuters.com:*:nL5N22P2FW
    "At 33.7 euros, 100 percent of Casino's shares are already
pledged by Rallye. Should the price drop below that number, a
margin call will occur," Kepler said.
    "As there are no shares left, Rallye will need to pay cash,
that is tap its unsecured credit line to repay the part of the
secured line not covered by the pledge" it added. 
    Casino's net debt stood at 2.708 billion euros and that of
Rallye at 2.899 billion euros at end-2018.

 (Reporting by Dominique Vidalon;
Additional reporting by Sudip Kar-Gupta, Blandine Henault and
Helen Reid;
Editing by Sudip Kar-Gupta, David Evans and Alexandra Hudson)
 ((sudip.kargupta@thomsonreuters.com; +33 1 49 49 53 84;))