Codere’s Financial Struggles Continue, Moody’s Turns Less Optimistic

Even before the COVID-19 pandemic, it seemed that Spanish casino and gaming operator Codere was in a great position. As much as it worked to grow its global footprint, though, there were signs of financial difficulty that couldn’t ignored. The coronavirus exacerbated the situation and began to work with its creditors in order to find an equitable solution. However, the long-term impact of the struggles and the restructuring of debt doesn’t seem to be enough, as Moody’s Investor Services has now turned less optimistic on Codere’s future.

Codere Issues New Notes, Restructures Debt

In a deal worked out with creditors last week, Codere is now essentially in liquidation. The company’s assets are being shifted and shareholders are going to try to breathe new life into the company through $271.5 million (€225 million) in cash. Certain debt maturity payments that were due this year will be delayed until 2023 and then again until 2026. Codere will also issue $120.6 million (€100 million) in new senior bonds, coming before the end of May in two tranches – the first for $36.19 million and the other for the balance.

After the dust settles in the restructuring, Codere’s creditors will control 95% of the company’s capital and the company’s shareholders will control 5% and will receive warrants for up to 15% of a future valuation agreement tied to a potential sale that could come within a decade. When the restructuring was announced last week, Codere explained, “With the implementation of this restructuring, which is expected to be concluded at the beginning of the fourth quarter of the year, Codere hopes to ensure the future of the company, thanks to the trust of its bondholders in the group’s prospects, in its management team and in the most of ten thousand employees that make up the organization.”

Difficult Times Ahead for Codere

Codere reported earnings of $1.26 billion (€1.045 billion) for 2019, but turned around and reported corporate losses of $289.5 million (€240 million) for the first three quarters of last year. The sudden and massive gap with no way to cover its financial obligations is an indication that perhaps the company had overextended itself as it expanded prior to COVID-19. It announced this past January that it was issuing new bonds in an effort to right the ship, but was also going to pay a higher interest rate – 12.75% – on certain credit facilities that highlighted the precarious situation Codere was in.

As a result of all of the juggling, Moody’s has downgraded senior secure notes worth $603.3 million (€500 million) and $362 million (€300 million) that emerged from the most recent restructuring agreement. These have gone from Caa3 to Ca, denoting an instrument that is “speculative and likely in, or very near, default,” and Codere’s $301.65-million (€250 million) super senior note is now rated as Caa1, which Moody’s explains means “speculative of poor standing and subject to very high credit risk.” That note was previously rated B3, only slightly better.

Moody’s also dropped Codere’s corporate family rating (CFR) as it predicts the company won’t have any more cash at the end of this month. While it acknowledges that the new cash injections will help the restructuring, Moody’s pushed the CFR to Ca from Caa3 and its probability of default to C-PD, which indicates “little prospect for recovery of principal or interest.”