Codere Reaches $1.4 Billion Debt Accord to Avoid Insolvency

By Katie Linsell and Julie Miecamp

Photographer: Antonio Heredia/Bloomberg

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After more than a year of negotiations, Codere SA (CDR) has reached an agreement with creditors to restructure 1.1 billion euros ($1.4 billion) of debt and avoid insolvency.
The Spanish gaming company will use the U.K. courts and seek a scheme-of-arrangement to implement the deal, which gives bondholders control of the company in exchange for debt. It also includes issuing 675 million euros of new notes and 253 million euros of new loans, Madrid-based Codere said in a statement.
“It’s great to finally see an
agreement between the two sides,” said Giovanbattista Caracciolo, a bond trader specializing in distressed debt at AdviCorp Plc, an independent investment bank based in London and Rome. “It was always clear the company had value. This outcome is much better than insolvency proceedings in which Codere would run the danger of losing its gaming licenses,” said Caracciolo, who does not hold any of the company’s debt.
The manager of betting parlors and race tracks in Spain, Italy and Latin America filed for preliminary creditor protection in January and had until today to reach an accord or start insolvency proceedings. Codere has reported 10 quarters of losses as recessions and higher taxes in Europe, as well as stricter gambling regulations and smoking bans in Latin America, eroded earnings.

Founding Family

Throughout the negotiations, the Martinez Sampedro family has battled to keep control of the company they helped to create in 1980. Jose Antonio Martinez Sampedro, who will remain chief executive officer, and his siblings Luis Javier Martinez Sampedro and Encarnacion Martinez Sampedro owned 68.5 percent of the company before yesterday’s deal, according to regulatory filings.
The family held 51.4 percent of their stake through Masampe Holding BV, which has at least 590 million euros of payment-in-kind loans outstanding, according to data compiled by Bloomberg. The loans, which let the borrower pay interest with more debt, were issued in 2007 to fund the purchase of shares in Codere’s initial public offering.
Under the restructuring plan, noteholders will initially hold 97.8 percent of Codere’s equity, leaving shareholders with 2.2 percent, according to the statement. Jose Antonio Martinez Sampedro and Luis Javier Martinez Sampedro will later have to buy 19.6 percent of shares from bondholders as a condition of the agreement, which includes delisting Codere.

‘Continuity of Ownership’

“It is of critical importance that Jose Antonio Martinez Sampedro and Javier Martinez Sampedro invest in restricted shares of the restructured Codere in order to align their economic interests on a permanent basis,” Codere said in the statement. This will maintain “continuity of ownership in light of the institutional and governmental relationships considered necessary to the successful continuation of the group’s licensed businesses.”
Codere’s new bonds will comprise 350 million euros of subordinated notes and 325 million euros of riskier payment-in-kind notes. The securities will be issued through a new special-purpose vehicle, according to the statement.
“It’s a debt-for-equity swap,” said Jorge Abad, a Madrid-based fixed-income investor at Renta 4 Gestora SGIIC SA. “The agreement reduces Codere’s debt and ensures the company’s continuity. The family’s equity holding is being significantly diluted and they are losing equity control.”

Codere’s Creditors

Bondholders including Silver Point Capital LP and M&G Investment Management Ltd. were advised by Houlihan Lokey in the debt negotiations. Codere was advised by Perella Weinberg Partners.
Los Angeles-based Canyon Capital Partners LLC is among the holders of Codere’s 127.1 million-euro loan. Blackstone Group LP’s GSO Capital Partners LP, based in New York, reduced its holding to about 20 percent in January.
The agreement allows Codere to avoid creditor protection. About 95 percent of companies that seek insolvency proceedings, known as concurso in Spain, are liquidated, according to Madrid-based Colegio de Registradores, a company that tracks corporate registrations.
Codere’s stock fell 9 percent to 58 euro cents at 1:11 p.m. in Madrid, according to data compiled by Bloomberg. The shares, which reached a record low of 49 cents earlier today, have no economic value, the company said in a statement.
Codere’s 660 million euros of 8.25 percent bonds rose 0.3 cents on the euro to 62.1 cents compared with a low of 37 cents in February, data compiled by Bloomberg show.
The company employs 17,890 people and operates more than 1,600 betting shops and 172 gaming halls in Spain, Italy and Latin America.