Traders Sell Off Casino Debt Amid Rising Concerns Over Grocery Chain’s Struggles

French grocery chain Casino is facing renewed pressure in the debt markets as fears grow over its ongoing weak earnings and the risk of breaching loan covenants next year. Investors remain wary of the retailer despite a major restructuring led by billionaire Daniel Křetínský more than a year ago.

Investors Cold Toward Casino’s Retail Chain After Restructuring

Investors have shown little enthusiasm for Casino’s retail operations following an extensive restructuring that wiped out over €5 billion in debt and converted it into equity. Despite these efforts, the company’s debt value has plunged to alarming lows amid concerns about its financial stability.

Debt Value Drops Sharply, Reflecting Lender Pessimism

In recent weeks, debt traders have been quoting prices for Casino’s €1.4 billion secured loan at just 61 cents on the euro. This steep discount signals that lenders are bracing for substantial losses. This comes barely over a year after Casino completed a significant debt overhaul aimed at stabilizing the business.

Casino’s Legacy and Ownership Changes

Jean-Charles Naouri, Casino’s former owner, transformed the company into a global retailer with leveraged acquisitions spanning from Asia to Latin America. However, years of struggling under heavy debt left the company starved for investment. The retailer ultimately yielded control in 2023 to Czech billionaire Daniel Křetínský, who now owns 53% of the company.

Financial Position and Market Valuation

Despite nearly €9 billion in revenue last year, Casino’s market capitalization has fallen below €250 million. The group’s total debt stood at €2 billion at the end of 2024. According to Clément Genelot, an equity analyst at Bryan Garnier, the company shows “no signs of commercial recovery” and may require additional capital injections from Křetínský.

Potential for Additional Capital Raises

A close associate of Křetínský indicated that a second capital raise is “always considered possible.” Although this might facilitate negotiations with creditors, it is unlikely to lead to a full debt restructuring again. Nonetheless, restructuring advisors told the Financial Times they are actively seeking mandates from Casino’s creditor groups to engage in further discussions.

Concerns Over Loan Covenant Breaches

Investors in distressed debt have grown increasingly anxious over Casino’s weak earnings, which threaten upcoming breaches of loan covenants. Casino’s auditors warned in March that such breaches could prompt lenders to demand immediate repayment, potentially triggering cross-default clauses affecting other debts.

Strict Covenant Terms and Leverage Ratios

As part of the 2023 restructuring, Casino agreed to stringent loan covenants on its €1.4 billion secured loan and a €711 million credit facility, effective from September. One key covenant requires that the net debt to core operating income ratio remains below 8.34x. However, Casino reported a leverage ratio of 14.6x at the end of March, up sharply from 4.9x the previous year due to declining profits.

Fitch Ratings and Credit Risk

Credit rating agency Fitch has assigned a CCC- rating to Casino’s secured loan, categorizing it as “significant credit risk” with a “possible likelihood of default.” A decade ago, Casino held a strong investment-grade rating under Naouri’s leadership, who was highly regarded for his business acumen.

Business Downsizing and Retained Assets

Naouri’s expansive portfolio was dismantled as Casino sold stores and subsidiaries to reduce costs and repay debt, while retaining valuable domestic stores operating under brands like Monoprix and Franprix.

Conclusion

Casino’s financial struggles continue to unsettle investors and creditors, with significant risks of covenant breaches and potential capital needs on the horizon. The retailer’s future hinges on its ability to stabilize operations and manage its heavy debt load under Křetínský’s leadership.

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