(Bloomberg) — Casino Guichard-Perrachon SA raised 350 million euros ($350 million) from hedge fund Farallon Capital ahead of the sale of a key unit in order to avoid a covenant breach on its debt, according to an analyst at Bryan Garnier.
The French retailer got antitrust and foreign investment approvals to complete the sale of the GreenYellow SAS unit on Oct. 18 at the latest, Casino said in a statement late on Tuesday. With the sale, it also announced a surprise advance payment by the US fund.
The pre-financing deal “shows how uncertain the grocer was about its ability to meet its third-quarter covenant at end of September,” Bryan Garnier analyst Clement Genelot wrote in emailed comments.
Casino didn’t disclose the interest it will pay on the Farallon loan and reiterated that its “financial projections are consistent with compliance of our covenants, as it has been the case for all previous quarters,” a spokesperson said in an emailed statement.
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Shares dropped as much as 2.1% in Paris on Tuesday. The stock is down 51% this year, amid renewed worries that the debt at the company’s French operations remains stubbornly high.
The owner of the Franprix and Monoprix banners in July signed an option to sell control of renewable energy provider unit to Ardian SAS for 1.1 billion euros in a bid to reduce its 15 billion-euro debt pile. Casino’s net proceeds are expected to be 600 million euros.
The Farallon loan may be immediately use for the buy-back of unsecured bonds trading at discount. Notes due in April 2027 are indicated at 54 cents on the euro, according to data compiled by Bloomberg.
“Such pre financing agreement is clearly not common. In our view, it tends to prove that Casino was on the edge of covenant breach for Q3 2022,” Genelot said in a note to clients. “The recurring covenant issue will come back as soon as in Q1 2023 amd Q3 2023.”
The company plans to reinvest 165 million euros in GreenYellow, alongside other shareholders Tikehau Capital, Bpifrance and Ardian.
Farallon invested more than 100 million euros in convertible bonds linked to GreenYellow earlier this year.