Codere tries again to shore up liquidity

31 Mar 15:20

Eleanor Duncan

Just five months after overhauling its balance sheet, Spanish gaming company Codere is set to come back to the bond market to shore up liquidity.

The company said it is hoping to issue €100m of high-yield senior secured notes in order to boost liquidity. It will also defer interest payments – due today – on its €250m super senior bonds due 2023, issued last year as part of its last restructuring.

Both moves are necessary so that Codere does not breach a covenant from the 2020 refinancing which stipulates the company must have minimum liquidity of €40m.

« Codere has been caught out by the severity of the third wave in Spain and Latin America, and the protracted impact of this phase of the pandemic which is likely to hit capacity in waves throughout the year, » wrote CreditSights analysts in a report on March 2.

Analysts are split on whether Codere’s latest move will allow the company to avoid another debt restructuring in the future.

« I do not believe that Codere’s capital structure is unsustainable, » said Mateo Salcedo, credit analyst at Spread Research. « The problem is that the company’s Ebitda has been highly impacted [by the pandemic], so it does not have enough money to make interest payments. However, I believe that creditors will accept the liquidity raise to allow the company to pay interest and avoid default – and then hope for circumstances to improve in the summer, which I believe they will, assuming the vaccination rollout goes as expected. »

If Codere’s activity normalised to 70% of its 2019 levels, net leverage would still be high but sustainable at 5.0x, Salcedo said.

As the October restructuring did not involve a haircut, the company’s net leverage did not decrease – and remains high, at around 11.5x as of September 31 2020.

In today’s statement, Codere said that some of the new notes could be issued as soon as April. It is thrashing out its potential recapitalisation and debt raise with a group of bondholders that hold the majority of its €250m super senior 2023s, and the holders of its €500m and US$300m senior notes.

In the interim, the company said it will be deferring its interest payment on its 2023s, and will use the 30-day grace period under the bond’s covenants to do so.

« The deferral of coupon payments was expected, given that part of Codere’s operations remained closed even in 2021, » wrote Lucror Analytics analysts. « While the additional €100m debt would help bridge the liquidity gap, it would add to Codere’s already heavy debt burden. We … see high possibility of a covenant breach and debt restructuring. »

The company said that its operations continue to be seriously affected by the Covid-19 pandemic and the consequent operating restrictions in force of many of the group’s markets for the past year.

« The company currently hopes to reach an agreement that will allow the group’s business to normalise after the Covid-19 pandemic, » it said in today’s statement.

No wiggle room

Codere was one of the first European high-yield credits to be hit by investor panic sparked by the global spread of the coronavirus last year.

The company was in a relatively weak position coming into the crisis, said Salcedo. Codere was already hurt in early 2020 by its large exposure to the Argentinian economy, which had a fairly turbulent 2019 with a lot of impact on the country’s currency. In addition, its expansion into Mexico has not paid off as they had hoped, he said.

Codere also has less wiggle room than other European gaming companies such as Gamenet, as Spain has a fixed scheme of taxes.

« That makes Spanish gaming companies much more impacted by the crisis than those in other countries, like Gamenet, » Salcedo said. « The fixed taxing structure means that taxes don’t depend on how much money these companies make from wagers but how many machines they have operating. What happened to Codere is that the crisis was much longer than everyone was anticipated – and their interest expenses are huge. »

The company had two junk bonds outstanding in March 2020 – €500m in 6.75% November 2021s and US$300m in 7.625% November 2021s. Both notes sank to distressed levels of around 30 cents on the dollar, down from 94–95, on concerns that the coronavirus outbreak may delay the company’s refinancing plans.

In October, the company’s bondholders agreed to extend their 2021s into bonds that would mature in November 2023, in exchange for higher interest rates. In September, it issued a further €165m of new super senior notes – incremental to an initial €85m printed in July – to a total of €250m new super senior notes due September 2023 and carrying a coupon of 10.75%.

A spokesperson for Codere declined to comment.