Moody’s downgrades Codere after restructuring announcement

Moody’s Investors Service has downgraded the €500 million and $300 million instrument senior secured notes of Codere SA, following a restructuring agreement reached between the Spanish operator and its creditors last week.

The ratings agency has made the decision to downgrade the two aforementioned senior secured notes from Caa3 to Ca, in addition to a €250 million super senior note, which has been downgraded to Caa1 from B3, 

In addition to the downgrading of the senior notes – both of which were issued by Codere Finance 2 (Luxembourg) S.A and due in 2023 – Moodys has also downgraded the company’s corporate family rating (CFR) to Ca from Caa3 and its probability of default (PDR) to C-PD from Caa3-PD. 

A Caa1 instrument rating has also been assigned to Codere’s €100 million bridge notes, due in 2025, that will be issued in two tranches by Codere Finance 2 (Luxembourg) S.A, whilst the outlook on all ratings has been changed from negative to stable.

The decision by Moody’s to downgrade the Bolsa Madrid gambling group’s rates follows the agreement secured last week between the operator and its creditors, which will see the firm benefit from a €225 million cash injection and enter a state of liquidation.

Taking place in two separate traces, the first tranche of financial support will come in May in the form of €30 million upon signing of the lock-up agreement, followed by a further €70 million. 

The second tranche, consisting of the remaining €125 million, will be transferred to the company towards the conclusion of the planned restructuring process.

Furthermore, as part of the proposed restructuring, the senior secured notes of €500 million and £300 million will be exchanged into reinstated senior secured notes of €135 million and $81 million, subordinated PK notes of €226 million and 95% of the share capital of the New Topco.

An additional caveat of the agreement will see Codere’s creditors capitalise more than €350 million in debt, corresponding to existing senior guaranteed bonds. 

The deal builds on a previous arrangement between Codere and its creditors, which allowed the operator to defer its debt maturity payments from 2021 until 2023 – these were in turn extended again last week to September 2026 and November 2027 respectively.

Moody’s has stated that it will ‘likely consider the maturity extension on the super senior notes and the debt-for-equity swap on the senior secured notes as a distressed exchange’.

Initially, Moody’s expected Codere to ‘run out of cash by the end of April 2021’. However, the rating agency ‘now calculates that the injections of €30 million in April and €70 million in May will provide additional time for Codere to restructure its debt.”

On the other hand, although Moody’s is now confident that the creditor arrangement will assist Codere’s with restructuring its debt and reorganising its business, the financial services provider ‘considers that the sustainability of the contemplated structure remains a key concern as the interest in kind will accrue rapidly and EBITDA growth prospects are relatively limited over the next two years’.

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