CODERE LETTER SENT TO BD OF DIRECTORS FROM COMMITTEE ABOUT NOTES

     (The following press release from Houlihan Lokey was received by e-mail. 
The sender verified the statement.)   
LETTER SENT TO THE BOARD OF DIRECTORS OF CODERE BY CERTAIN MEMBERS OF THE
AD HOC COMMITTEE OF NOTEHOLDERS REPRESENTING C. 50% OF CODERE’S EURO AND
DOLLAR NOTES
________________________________________________________________________________ 
Date: 24 February 2014
Dear Sirs/Madam,
Codere: Financial Restructuring
We refer to the correspondence in this matter from us and certain members of 
the ad hoc committee
of noteholders (the “AHC”), some of whom have been restricted/private members 
from time to time
(the “Private Side AHC Members”). In particular we refer to the letters dated 
11 December 2013 (the
“Original Private Side AHC Letter”), 30 December 2013 (the “30 Dec Private Side 
AHC Letter”) and
15 January 2014 (the “January Reservation of Rights Letter”), as well as the 
letter dated 2 February
2014 which enclosed a final offer to the Company from certain Existing 
Noteholders (the “Final
Offer”). We also refer to your last letter dated 17 February 2014 (the 
“February Company Letter”).
Unless otherwise defined in this letter, terms defined in the Original Private 
Side AHC Letter and the
30 Dec Private Side AHC Letter (including by reference) shall have the same 
meaning when used in
this letter.
As previously stated, we continue to reserve all rights in respect of the 
Existing Notes and other
related finance documents as set out in the January Reservation of Rights 
Letter. In addition, we
reconfirm the provisions in paragraph 1.2 of the Original Private Side AHC 
Letter which we draw your
attention to for the purposes of this letter and which shall be deemed to apply 
to each signatory to this
letter.
We are writing to respond briefly to the assertions made in the February 
Company Letter and to
reiterate that the Final Offer remains the only viable alternative to 
insolvency proceedings. In that
context, the Final Offer is unequivocally in the best interests of the Company 
and all of its stakeholders
including its existing shareholders, financial creditors, employees, customers 
and suppliers. We have
clearly documented our reasons for that belief in our previous letter and it 
does not seem productive at
this juncture to repeat those once again.
Brief Background
As the Board is aware, the AHC originally formed in May 2013. In order to 
facilitate an even deeper
level of engagement, the Private Side AHC was later formed, which consisted of 
a subset of
restricted/private members of the AHC. Over the past nine months, we have 
worked relentlessly to
reach a consensual solution with the Company Parties, including the Major 
Shareholder. In doing so,
we have devoted significant time, effort and resources to constructively work 
with the Company
Parties, including making numerous restructuring proposals. These proposals 
include those put
forward to the Board in July 2013, August 2013, September 2013 (each as 
detailed in the AHC’s letter
dated 2 September 2013), November 2013 and the Proposed Terms presented to the 
Company
Parties in Madrid on 5 December 2013. On 18 December 2013, the Private Side AHC 
Members
further revised the Proposed Terms with a significantly improved capital 
structure in the form of the
Revised Capital Structure Terms. Despite this being an act of negotiation 
against ourselves, the
Revised Capital Structure Terms were put forth at the encouragement of the 
Company’s advisers to
accommodate the wishes of the Major Shareholder.
Notwithstanding numerous attempts by us and our advisers to negotiate with the 
Company Parties,
there has been no constructive engagement from the Company Parties since early 
December 2013.
As we have said before, we fail to see how any person acting in good faith 
could continue to act in
such a way.
We do not believe it is productive to further detail the efforts that the 
Private Side AHC Members
undertook in pursuit of a consensual solution or the inadequate responses from 
the Company Parties.
As the Board is aware, these details are fully documented in our numerous 
previous letters. Given the
hopeless negotiating dynamic set up by the Board and the Major Shareholder, we 
felt compelled to
deliver the fully underwritten and implementable Final Offer. In doing so, we 
wanted to give the Board
and the Major Shareholder one last opportunity to avoid concurso, which will 
not only be highly value
destructive for all stakeholders, but will unambiguously result in a zero 
recovery for the existing
shareholders. Nevertheless, despite the clear benefits of the Final Offer, the 
Board and the Major
Shareholder have inappropriately rejected the proposal via the February Company 
Letter.
Response to February Company Letter
We take note of the statements made in the February Company Letter with respect 
to aspects of the
Final Offer requiring the requisite approval of the Company’s shareholders at a 
meeting of the
shareholders. We have never suggested otherwise (please refer to paragraph 
3.3(d) of the Final Offer
and paragraph 1(a) of Schedule 4 of the Final Offer where we acknowledge the 
same).
There is a clear inconsistency in the statements made in the February Company 
Letter regarding the
Board not being the right addressee of the Final Offer whilst at the same time 
rejecting the Final Offer
on the shareholders’ behalf. Consistent with our Final Offer, we expected that 
the Board would
convene a general shareholders’ meeting of the Company’s shareholders to 
analyse and decide
whether to accept the Final Offer. After analysing the Final Offer, a minimum 
duty of care would require
the Board to give the entire shareholder group the opportunity to consider the 
Final Offer, as it is the
only alternative that would avoid the Company filing for concurso. This should 
be particularly
compelling to the existing shareholders, since the filing for insolvency would 
result in a certain zero
recovery for them.
In addition, we do not agree with the conclusion reached in the February 
Company Letter that the
Final Offer does not respect the equality of all shareholders, privileging or 
treating differently some
compared to others. Nor do we agree that the Final Offer, if implemented, would 
breach Spanish
company law, stock market regulations or any other applicable law and believe 
that any such assertion
is an act of bad faith. Therefore, the real reasons for rejecting the Final 
Offer remain very unclear to
us. We can only conclude that the Board continues to be influenced by the Major 
Shareholder, whose
clear objective is to retain control of the Company at the expense of all other 
stakeholders, including
the existing minority shareholders.
Taking in turn the points raised in the February Company Letter:
(A) Discriminatory treatment of minority shareholders
We strongly disagree with the assertion that the Final Offer treats minority 
shareholders in a
discriminatory manner. Rather it is clear that the Final Offer treats all 
shareholders equally and delivers
them more value than they would receive in the alternative scenario, concurso.
The Existing Noteholders who support the Final Offer are willing to offer a 
portion of their recoveries to
the existing management team in consideration for services to be provided (not 
to “certain members of
the Martínez Sampedro Family” as stated in your letter). It is wholly in line 
with market practice to
incentivise a management team to maximise shareholder value in the future 
through the issuance of
equity and warrants. In fact, this incentive will benefit all shareholders, 
including the existing
shareholders, notwithstanding the fact that only the Existing Noteholders will 
be paying for this by
diluting their recovery package. To be clear, even if the Final Offer were to 
exclude such a
management compensation package, the existing shareholders would not receive 
any additional
recovery.
Indeed these are principles which you have yourself accepted in previous 
proposals under which the
Board has offered even richer incentives to management than that proposed under 
the Final Offer. To
illustrate this point, we highlight that the Codere III proposal made by the 
Company Parties includes
warrants that result in fully diluted ownership for management of 35% of the 
equity and the Codere IV
proposal made by the Company Parties includes warrants that result in fully 
diluted ownership for
management of 37.5% of the equity plus an additional management incentive plan 
not specified. It is
therefore very surprising to now hear an assertion that the existence of a 
management incentive plan
discriminates against certain of the Company’s shareholders.
This particular reason for rejecting the Final Offer is therefore entirely 
without merit.
(B) Circumvention of Spanish law
The Final Offer stated clearly numerous times in both the letter and the 
accompanying term sheet that
the proposal set out therein was subject to Spanish law, as well as any other 
applicable law. If, as
asserted in your letter, that would involve or necessitate a general meeting of 
the shareholders, then
we expect that a general meeting of shareholders would need to be held. In 
fact, we made the calling
of such a necessary meeting a required undertaking of the Company as a 
condition to the Existing
Noteholders’ willingness to consummate a restructuring. There is no intention 
whatsoever in the Final
Offer or in our prior correspondence to the contrary, least of all any 
intention to circumvent the laws,
rules and regulations to which the Company, the Issuer and the Board are 
subject.
This also applies to your suggestion in the February Company Letter that the 
“alternative route” is
inconsistent with applicable law and we can only conclude that this statement 
has been made in bad
faith. The aim of that proposal was not to deprive the shareholders of their 
capacity to vote, but to
restructure the entire debt position of the company in a manner consistent with 
other recent, large
scale restructurings completed successfully in Spain. While we are satisfied 
that the “alternative
route” fully complies with applicable law, if any element of the “alternative 
route” would require actions
that are in violation of Spanish or other law, the Final Offer clearly 
indicates that we would not be
willing to pursue such a path.
This particular reason for rejecting the Final Offer is therefore entirely 
without merit.
(C) Debt structure
We are very surprised to read that the Company does not need to receive €400 
million new capital
availability given that you had previously asked us to provide you with €500 
million new capital
availability. Nevertheless, we are of course happy to reduce the amount of new 
capital that we invest
into the business so long as you provide us with a credible business plan that 
shows us that the
Company can survive and thrive on a reduced level of new capital. Please 
understand though, we
have no appetite to restructure the Company with insufficient new capital to 
withstand the volatility of
the gaming markets in which it operates. The Board and the current management 
of the Company are
operating the Company with insufficient liquidity today. The outcome of such 
action is the series of
defaults, failure to meet obligations as they come due and pre-concurso that 
the Company is suffering
through today. We do not wish to repeat such a mistake.
Importantly though, the new capital injection is not the reason for the 
dilution of the existing
shareholders. Rather, the shareholders are being offered the opportunity to 
consent to dilution on
account of the needed write off of existing debt, which debt is strictly senior 
in order or priority of
payments to the equity.
Closing
As described above, we are surprised at many of the Board’s positions in its 
February Company
Letter. These positions are both inconsistent with prior Board proposals and 
demonstrate a failure to
understand the clear underlying principles of the Final Offer. Given the 
certainty of zero recovery for
the existing shareholders following a concurso filing, we believe rejecting the 
Final Offer outright on
these meritless claims was irresponsible and further evidence that the Board 
and the Major
Shareholder are not acting in good faith and are continuing to act in a manner 
inconsistent with the
best interests of all the Company’s stakeholders.
Because the Final Offer has been rejected, we remind you that we will take all 
steps necessary to
seek to protect our position and recover all amounts outstanding to us. Such 
steps may include,
amongst other matters, instructing acceleration of the Existing Notes and 
enforcement of the
transaction security in respect thereof. Therefore, we reserve all of our 
rights in relation to the Existing
Notes and any other related finance documents and nothing in this letter or any 
action or inaction
taken or omitted by us shall be or is intended to release or waive any 
obligations of the Company or its
subsidiaries under the Existing Notes and/or any other related finance 
documents.
Yours faithfully
____________________________________________________________________________
ENDS
 
 
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