Casino Shares Drop After Warning of Looming Default

Casino Guichard Perrachon SA’s shares dropped to a new record low on Monday after the French grocer warned it’s on the verge of defaulting on its credit line.

(Bloomberg) — Casino Guichard Perrachon SA’s shares dropped to a new record low on Monday after the French grocer warned it’s on the verge of defaulting on its credit line. 

Casino’s gross secured debt on Friday, the end of the quarter, exceeded the cap of 3.5 times earnings set in the terms of its revolving credit facility, the company said. Casino is in restructuring talks with creditors through a so-called conciliation process. The shares slumped as much as 21% before paring the drop.

The company asked lenders to waive their right to declare Casino in default because of a breach of the terms, and they haven’t responded yet, Casino said. If it doesn’t get a waiver, Casino could default by the end of August at the latest, according to the statement. That in turn could trigger a default on some of the company’s other debt.

The developments could hasten the financial collapse of the debt-laden supermarket empire run by Chairman Jean-Charles Naouri. The stock plunged last week after the company warned its debt restructuring will almost wipe out existing shareholders and cause Naouri to lose control of the business. 

Casino’s bonds plunged to distressed levels over the past few years as the company’s earnings suffered in France’s hyper-competitive grocery market. The surge in interest rates of the past year has made it more difficult to find any possible solution to Casino’s debt woes. 

Default on the credit line could push holders of Casino’s unsecured bonds due in 2026 and 2027 to seek accelerated repayment. 

The court-appointed conciliators who are overseeing the restructuring talks have asked creditors to allow Casino to hold off on paying interest and other fees of about €130 million ($141.5 million), and principal payments of about €70 million. They also asked creditors to waive their right to declare the company in default if it misses payments.

Bondholders of secured notes issued by Quatrim SAS agreed to the waiver, but holders of the 2026 and 2027 bonds refused, Casino said. The company will ask the commercial court to apply a grace period, it said.

Casino shares were 2.1% lower, at €3.99, at 11:38 a.m. in Paris, paring an earlier drop of as much as 21%. Monday’s decline adds to a 48% plunge last week. Unsecured bonds were quoted at around a record low of 6 cents on the euro.

CDS Trigger

Since the company entered into the court-supervised talks with its creditors there have been several attempts to trigger the credit default swaps, derivatives contracts that protect debt holders in case of default. 

The Credit Derivatives Determinations Committee — the swaps expert panel that decides on CDS matters — have been asked five times so far whether there have been different events that would trigger the payout of the contracts. The first two questions received a negative answer, a third one was rejected, another one — regarding the delay of tax payments — has been accepted and needs to be considered and a fifth one is pending.

If the panel say that a payout event has been triggered, there would probably be an auction to determine the value of the contracts. Considering that the unsecured bonds are quoted below 6 cents on the euro, the credit protection holders stand to make a big win if the CDS are triggered because the value of the contracts is calculated as the difference between par and the value of the bonds.

Restructuring plan

The company is seeking to convert all of its €3.5 billion unsecured debt and as much as €1.5 billion of its secured debt into equity. It also needs a capital increase of no less than €900 million euros to implement a strategic business plan that consists on focusing in smaller, premium stores in city centers and sell non-core assets, including the business in Latin America. 

The deadline to present bids to inject equity is 12pm Paris time on Monday. 

(Updates share-price move, adds details on CDS and restructuring plan.)

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