The debt-laden French supermarket Casino is facing a new chapter

French supermarket chain Casino is expected to begin formal talks with creditors this week as a group of wealthy investors surrounds the debt-ridden retail empire built by Jean-Charles Naouri.

Casino, which owns the Franprix and Monoprix chains, has been ailing for several years due to too much debt, declining revenues and loss of market share. The retailer’s parent companies, through which Naouri manages the Casino, have been under court supervision since 2019.

This week Casino is expected to enter into voluntary negotiations with its creditors – the so-called a negotiation procedure – this will be overseen by a court-appointed official, Marc Sénéchal, a well-known lawyer specializing in such cases, according to several people involved.

The move falls short of a court-supervised debt restructuring under French law — though it may pave the way for such a move — but for now it opens a critical chapter for the company, which employs 53,000 people and is the country’s sixth largest. the largest food retailer based on market share.

The decision to open formal talks with lenders, including major French banks and international hedge funds, comes as Casino has attracted interest from some high-profile investors and billionaires.

Jean Charles Naouri
Jean Charles Naouri continues to seek to retain his controlling stake despite the deterioration of Casino and its parent companies © JB Autissier/Panoramic via Reuters

In April, Czech billionaire Daniel Křetínský, already Casino’s second-largest shareholder, offered to lead a €1.1 billion investment that would dilute Naouri and deprive him of control of the chain. The proposal is backed by investor Marc Ladreit de Lacharrière, whose Fimalac group is currently Casino’s third largest shareholder.

Křetínský’s intervention initially appeared to derail plans announced in March to merge Casino’s French retail business with Teract, a smaller rival backed by entrepreneur Moez-Alexandre Zouari, tech billionaire Xavier Niel and investment banker Matthieu Pigasse.

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But as pressure mounts to resolve Casino’s future, the two camps are talking and will be involved in a negotiation process aimed at reaching an agreement on Casino’s debt and the eventual structure of the group, according to people familiar with the matter.

The retailer and the holding companies through which Naouri controls his stake have a debt repayment of €4.9 billion due by 2025. Casino had a debt of 6.4 billion euros at the end of last year.

He is known for his financial planning, which helped create a business empire in Brazilian grocery stores and renewable energy. Naouri has long tried to maintain his controlling stake despite the deterioration of Casino and its parent companies, including Rallye. However, the chances of this are getting smaller and smaller, people said.

“Everybody talks to everybody. They all know each other,” one person said. “[Naouri] you are forced to make a deal where you lose control. . . Last year he didn’t think he had to, but since then business has gone down.”

Earlier this month, credit rating agency S&P downgraded Casino, saying “a default, difficult swap or redemption appears inevitable within six months if there are unexpected and significantly favorable changes in the group’s circumstances”.

Casino said it was “carefully reviewing the various expressions of interest” in the group and that “ultimately decisions will rest with the board”. Teract declined to comment and Křetínský did not respond to a request for comment.

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Teract’s and Křetínský’s proposals would provide relief in different ways for Casino, which reported a nearly 5 cent drop in revenue in its French business last quarter.

The former would spin off the French retail business, reposition the group to market fresh farm produce, provide a cash injection of at least €300 million and provide an opportunity to sell stores to rival Intermarché. Meanwhile, Křetínský’s proposal would provide more funding but not address the chain’s operational problems.

Casino and Naouri’s creditors, including BNP Paribas and Crédit Agricole, also influence the outcome, while secured and unsecured creditors include several American and European hedge funds.

“There are so many parameters and players, it’s hard to predict how it might all shake out,” said one person involved. “It’s more complicated than three-dimensional chess.”

Depending on how the conciliation process goes, Casino could enter an even more extensive debt restructuring process, which in France is procedure de sauvegarde. It has two forms, accelerated and standard.

One of the advantages of trying to restructure debts through conciliation or fast-track protection is that the process is limited to financial stakeholders, so Casino’s suppliers are excluded. “Bruno Le Maire [French finance minister] not allow them to go bankrupt” against suppliers, one Casino bondholder said.

Given the size of Casino and its range of suppliers, from dairy farmers to vegetable growers, the French government is keeping a close eye on events.

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But determining the Casino’s future is complicated by the labyrinthine structure built by Naouri. As a result of the continuous slide from investment-grade credit to bad debt, the group has bonds and loans with several conditions.

Lenders and advisers say the complex picture makes it particularly difficult to reach an agreement between creditors.

For example, some of the Casino’s secured loans are expected to be assumed by Teract if the deal goes through, which would prove contentious if those creditors still have a say in the remaining debt in the Casino’s remains. Meanwhile, some holders of Casino’s unsecured bonds enjoy more investor protections than others, further hindering creditors from finding common ground.

Daniel Kretinsky
Casino’s second-largest shareholder, Czech billionaire Daniel Křetínský, offered to lead a €1.1bn investment in the group in April © Thomas Samson/AFP via Getty Images.

As creditors weigh their options, Křetínský and supporters of the Teract proposal appear open to working together. Křetínský told Le Point magazine earlier this month that his capital injection “does not contradict” the Teract project, while Moez told Agence France-Presse that they “would be happy to partner with someone as experienced” as Křetínský.

“It is now more likely that Křetínský and Teract will take control of Casino,” said Bryan Garnier analyst Clément Genelot.

Genelot reckons that one possible scenario would see Teract taking a 30 percent stake in Casino’s main French business, Intermarché about a quarter, Křetínský about 20 percent and Naouri under 10 percent.

But the negotiations a negotiation procedure is not expected to begin until this week, unlikely to be a quick fix for Casino.