Advertisement

France's Casino CDS holders gear up for payout as committee declares credit event

FILE PHOTO: Logo of Casino in Nantes

By Chiara Elisei

LONDON (Reuters) - A committee that reviews disputes in the credit default swaps (CDS) market on Wednesday ruled that a failure to pay credit event occurred regarding retailer Casino Guichard-Perrachon, paving the way for a payout to investors holding the swaps.

The French company is undergoing a restructuring process via court conciliation, which will result in Czech billionaire Daniel Kretinsky taking over Casino and its 6.4-billion euro ($6.86 billion) debt being restructured.

A number of circumstances can constitute a credit event that can trigger a payout on CDS, which insure against losses from exposure to corporate or sovereign debt.

In reaching its decision, the committee said that Casino failed to pay the interest due on its 2026 notes within the 30-day grace period, citing announcements by rating agencies S&P, Moody's and Fitch as supporting evidence.

It also added that any suspension of payments ordered by the Paris Commercial Court does not affect the occurrence of the credit event, given the notes are governed by New York law.

The Paris Commercial Court has temporarily suspended all payment obligations related to the notes and is set to rule later in September on requests for grace periods relating to them.

A total of 10 questions have been raised with the committee in recent weeks on whether a bankruptcy or a failure to pay credit event had occurred at Casino.

All previous questions were dismissed by the committee, citing a lack of publicly available information that would provide sufficient evidence of a credit event occurring, or dismissing them as related to future events.

The saga has shone a spotlight on an opaque corner of the credit market that can earn investors holding protection against risky debt a big payout. Some investors and analysts say that some definitions under the committee's rules need to be refreshed and loopholes reviewed to provide greater transparency and certainty.

($1 = 0.9330 euro)

(Reporting by Chiara Elisei; editing by Karin Strohecker and Emelia Sithole-Matarise)