Casino CDS Holders Set for Payout, Ending Months of Speculation

Holders of derivatives that protect against a default by French supermarket chain Casino Guichard-Perrachon SA are set for a payout, ending months of speculation.

(Bloomberg) — Holders of derivatives that protect against a default by French supermarket chain Casino Guichard-Perrachon SA are set for a payout, ending months of speculation.

The Credit Derivatives Determinations Committee, which oversees the credit-default swaps market, ruled on Wednesday that a failure-to-pay credit event had occurred, which will trigger the contracts. All 12 banks and investment fund members on the panel supported the ruling, according to a notice on the CDDC’s website.

Traders have been pushing for a payout under the contracts, with holders potentially set to receive a huge return given Casino’s unsecured bonds are quoted at just a few cents. Since the grocer entered court-supervised debt talks in May, market participants have put around ten questions about a potential credit event to the committee.

Casino failed to pay a coupon due on its bonds due in 2026 on July 17 and didn’t send the money through to investors in the 30-day grace period which followed, the panel said.

Despite the Commercial Court of Paris suspending all payment obligations for the grocer as it entered talks with creditors earlier this year, a failure-to-pay credit event has still occurred, according to the ISDA definitions, a rulebook for credit default swaps the panel closely follows. Moreover, the notes due in 2026 are governed by New York law, rather than the French law.

Last week, Fitch Ratings and S&P Global Ratings both downgraded the issuer as they said a default had occurred under the 2026 notes.

Casino is set to open so-called safeguard proceedings — a court-supervised restructuring process — by October and complete the debt revamp in the first quarter of 2024. The supermarket chain reached a restructuring deal in July that will see Chairman Jean-Charles Naouri cede control to investors led by Czech billionaire Daniel Kretinsky.

The net notional outstanding amount of CDS contracts was $360.7 million in the week ending Aug. 18, according to data from the Depository Trust and Clearing Corporation.

Debt Load

The troubled retailer has been attempting to trim its debt load via asset sales since 2018, and has had to contend with pandemic lock-downs and a recent strategy of raising prices more than its competitors. The company reported an underlying net loss of €1.3 billion ($1.39 billion) in the first half of the year.

What’s the CDDC, Whose Rulings Can Unlock Billions? QuickTake

Now that the committee has come to a decision on the credit event, it needs to figure out the mechanics of any payout. That includes identifying which securities can be delivered as part of the swap settlement.

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