Ceconomy Refi Red Flag Review – Same Structure, New Sub-IG Terms

June 25, 2024

Ceconomy has launched its refinancing of its senior unsecured notes due 2026, choosing a standard high yield structure as compared to their previous, more IG-like German law governed bonds.

In our red flag review, we noted the following features.

Redemption – 10% @ 103% + Sustainability Step-up

The issuer’s redemption provisions include a 10% at 103% redemption provision and a Sustainability Performance Target Step-up set at 0.375% and based on emissions reduction targets.

Credit Support – No guarantees + no security

These notes, like those being refinanced, are not guaranteed or secured, and will rank pari passu in right of payment with the issuer’s existing notes, ESG Credit Facilities Agreement, Euro Commercial Paper Program,Promissory Notes and Convertible Bonds. As such, the notes will be subject to potential future subordination, both structurally if subsidiaries incur debt in the future, and effectively if assets of the group are secured in favor of other lenders.

Debt & Liens – Some subordination protection

As there are no guarantees, the availability of Debt covenant capacity to non-guarantors is key to assessing potential subordination risk. All baskets are available to non-guarantors, and there is a non-guarantor sub-cap applicable to the Ratio Debt Basket and Credit Facilities Debt Basket set at the greater of €350 million and 37% of Consolidated EBITDA, providing some limited protection.

Similarly, as the notes are unsecured, Permitted Liens capacity is important to assess. Permitted Liens are limited and include a General Permitted Liens Basket set at the greater of €350 million and 37% of Consolidated EBITDA.

Restricted Payments & Permitted Investments – Builder capacity only goes up

The builder basket contains the “zero floor” provision thatwill prevent the 50% CNI builder from being depleted below zero from losses.The General Restricted Payments basket is set at the greater of €350million and 37% of Consolidated EBITDA, and there is a Leverage-based RP basketset at 2x Consolidated Net Leverage Ratio. The Permitted Investments definitionincludes a generous General Basket set at the greater of €500 million and 52%of Consolidated EBITDA.

In sum, the terms reflect standard high yield protections, with more simplicity in calculations and capacity than top-tier sponsor deals – sometimes boring is better!

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