Casino's parent Rallye placed under creditors' protection

Credit: REUTERS/Stephane Mahe

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.


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.

"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)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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