Casino's second restructuring: when the first deal leaves too much debt behind

A restructuring is meant to be done once. Casino Guichard-Perrachon, the French grocer that is changing its name to Plesio, finished its first one in March 2024. On 10 November it announced a second: an agreement in principle with its controlling shareholder and lenders holding about 90% of its term loan B. The new owner puts in more money, the lenders take a loss, and the old shareholders are left with almost nothing. The case is a lesson in what the first deal did not fix: it cut most of the debt, but not enough for a business that was still shrinking.

The first rescue

In July 2023 Casino agreed a plan with a consortium led by EPGC, the vehicle of the Czech investor Daniel Kretinsky, together with the creditor Attestor and the shareholder Fimalac. Reuters reported the terms: €6.4 billion of debt restructured, €4.9 billion converted into equity and €1.2 billion of new money, for a total reduction in debt of €6.1 billion. The consortium would own just over half of the shares. Rallye, the holding company through which Jean-Charles Naouri had controlled Casino, lost control. The plan was put in place through an accelerated safeguard procedure, a French court process for restructurings that are already largely agreed, and completed at the end of March 2024.

On paper, that was a large rescue. In practice it left a €1.4 billion term loan, the TLB, on a business that was still selling stores, cutting costs and changing its formats. The debt stayed while the company got smaller.

How it came back

By this year the gap was visible. In the nine months to September, the group reported adjusted EBITDA of €498 million, up 9.3%, and free cash flow of €16 million before financial charges. After financial charges, free cash flow was negative €104 million. In other words, the stores now roughly paid for themselves, but not for the debt. Net leverage was 7.33 times at 30 September, above the 6.11 times ceiling in the loan terms, and the company did not pay the TLB interest due on 27 September.

The lenders did not wait quietly. Over the summer some went to court to challenge how the classes of affected parties had been composed and to seek the termination of the 2024 safeguard plan. A restructuring done in court can be reopened in court, and the lenders used that.

A first restructuring that cuts most of the debt but not all of it can leave the company with the same problem on a smaller scale.

The second deal

The terms agreed on 9 November are simple to state:

New money. France Retail Holdings, the Kretinsky vehicle, injects €390 million through a share issue reserved for it.
Debt cut. The TLB principal falls from €1.4 billion to €800 million, reinstated for five years. The rest converts into shares.
Control. FRH keeps a majority and will buy the shares that the lenders receive from the conversion. The lenders get value back without becoming long-term owners of a grocer.
Old shareholders. They are diluted to below 0.1% of the share capital.
Truce. The lenders' committee will drop its challenges to the class composition before the vote, and its proceedings against the 2024 plans once the amended plans are final.

The deal still needs agreed documentation, a vote of the affected classes on the amended safeguard plans and approval by the Paris Economic Affairs Court. Plesio is aiming to complete it by the end of March 2027. Its banks have asked for operating credit lines and consents to be extended to 4 January 2027.

What worked and what did not

The 2024 deal did its basic job. It kept 6,500 stores open, changed the owner and cut debt by billions without a liquidation. Second rescues can be cheaper and quicker because the owner is already in place and the information is already on the table. It also helped that the shareholder brought new money and agreed to buy the lenders' shares, which closed the gap between the two sides.

What did not work was the amount of debt left behind. The figure was set against a business plan, not against the cash the business actually produced after the store closures. When cash after interest stays negative, the covenant breaks and the cycle starts again, as it did here. And a court plan that classes of creditors think was unfair stays open to challenge for as long as it lasts.

Questions to ask

After a restructuring, is the remaining debt sized to the cash flow after interest today, or to a plan that assumes a recovery?
How much of the business will be sold or closed after the deal, and does the debt shrink at the same pace?
If the plan is imposed on some classes of creditors, how strong is their case for reopening it later?
Does the controlling shareholder have the means, and the reason, to put in money a second time?
What would a lender recover by taking control, compared with being bought out by the owner?