The Casino Bond Market Has Fallen To A Record Low As A Retailer Seeks A French Partnership

Casino Guichard-Perrachon SA's troubles in its home market caused its bonds to drop to an all-time low as the company races to combine its operations with Xavier Niel's retailer.

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The casino chain reported a slump in its earnings from France as well as plans to put its 9,100 stores in France into a joint venture with Teract SA, the company that owns the Jardiland grocery chain in France. An investor group is in the process of raising €500 million ($529 million) to fund the resulting venture.

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In the past year, the stock has dropped more than 40%, falling as much as 5.8% on Friday. With a five-year default probability of 99%, credit default swaps are priced accordingly.

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“We cannot rule out the possibility of a broader restructuring of the debt at this time,” Christine Kam, a credit analyst at Octo Finances, said in an interview. 

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In order to shore up its finances, the supermarket operator has been accelerating asset sales in a bid to raise money. After selling a portion of its stake in Brazilian unit Assai worth $600 million less than four months ago, the company announced this week it plans to sell another portion of that stake worth $600 million. A number of divestments are expected to take place in the future, according to analysts.  

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The Casino announced in February that it has begun exploratory discussions with Teract about the potential merger, confirming a report by Trade Algo at the time. Several people with direct knowledge of the matter said at the time that the new entity might eventually seek to be listed on the stock exchange.

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There would be a casino controlling the company, and a separate new entity controlled by Teract shareholders would be responsible for the supply of agricultural products for the company. François Guyot, a credit analyst at Spread Research, wrote that the French retailer is expected to acquire Bio & Co, a chain of organic food retailers, and Frais d'ICI, a chain of organic food retailers that specialize in locally sourced produce, just at the same time that organic food sales are plummeting as a result of the cost-of-living crisis.

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Teract’s Roots

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The origins of Teract can be traced back to a special-purpose acquisition company formed by Moez-Alexandre Zouari in collaboration with telecommunications entrepreneur Niel and banker Matthieu Pigasse. InVivo Retail merged with its blank-check company to form InVivo Blank Check. Having operated some Franprix and Monoprix franchises for quite some time now, Zouari has been a long-term Casino partner.

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Shares of Teract rose as much as 4.2%.

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Currently, the two companies are in talks with investors interested in backing the deal, and they expect to reach a binding agreement by the end of the second quarter.

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On a separate note, Casino reported Friday that its French retail unit's earnings in the second half of last year dropped by 7% at constant currencies due to sluggish sales in the country. There was a decrease of €339 million in the net debt in France at the end of December from a year ago, to €4.5 billion. 

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Casino has also said that it intends to reduce costs by €250 million and to reduce inventory by €190 million in the first half of the year due to its overestimation of demand for the first half of the year. There was a negative free cash flow of €524 million in 2022 as a result of that.  

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Bond prices for Casino's notes due in March 2024 fell to 73 cents on the euro before rebounding to 77 cents, indicating investors do not expect a full repayment.

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A Carrefour SA proposal was spurned by Casino in 2018 for the possibility of a possible merger, and the company's CEO Jean-Charles Naouri has been recalcitrant to let go of the company's control ever since.

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In the interim, he has managed to get Rallye SA, a unit that owned a majority stake in Casino, to restructure its debt without losing his grip on the retail chain.

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“There is no doubt the company will have enough liquidity to meet the short-term debt maturities as a result of all the asset sales planned,” according to Octo's Kam. “There are, however, a number of investors who are concerned about the high level of cash burn and who are concerned that the main shareholder might not be so keen on repaying the debt if he is at risk of losing control of the company."