(The following press release was received by e-mail. The sender verified the statement.) 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 offer letter dated 20 March 2014 (the “Offer Letter”) which enclosed a revised restructuring proposal which was supported by over 80% of the Existing Noteholders (the “Revised Final Offer”). Unless otherwise defined in this letter, terms defined in the Offer Letter and the Term Sheet (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 letter to the Board from certain members of the AHC dated 15 January 2014. In addition, we reconfirm the provisions in paragraph 1.2 of the letter to the Board from certain members of the AHC dated 11 December 2013 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 also refer to the Board’s letter in response dated 26 March 2014 (the “March Company Letter”) and are surprised by, its tone and content. In particular, that letter not only includes factually incorrect statements, but it also fails to address the specific requests made in the Offer Letter and then purports to advance a Company-led “counter-proposal” on less favourable terms than even the Company’s previous publicly-disclosed proposals. We are writing to the Board to address these issues in turn. A. Clarification of Company statements 1. “Threatening” language The Offer Letter and our letter of 11 March 2014 set out to the Board the purpose of the New Insolvency Law and highlights that it provides an opportunity for the Company to avoid insolvency proceedings altogether. The tone of these documents is factual, not threatening. Given the insolvent and over-levered state of the Company, we continue to believe that the only way to save the Company is to equitise a significant portion of the Company’s debt and refinance the matured senior credit facility. This is the proposal that we have described in our Offer Letter, it is consistent with the New Insolvency Law, and it is the only way to maximize value for all stakeholders (including employees, creditors, suppliers and minority equity holders). The Final Offer was put forward, both expressly and by implication, in accordance with Spanish law and all other relevant laws and regulations and was amended under the Revised Final Offer to remove from the negotiation some of the incorrect assertions used by the Board to reject it. 2. The Board is “willing to study, with a constructive spirit, any alternative that aims to give a stable financial structure to the Company and which assures its future viability” The Board and other Company Parties have consistently failed to engage in negotiations in good faith despite repeated attempts by the Private Side AHC Members and their advisers to do so. Because of the Board’s unwillingness to engage in negotiations, and with limited time available to get to a consensual solution to the Company’s insolvency, the Existing Noteholders were left with no choice but to refer to the most recent restructuring proposals as a “Final Offer”. If the Board was willing to engage, it could constructively explore the Final Offer and the Revised Final Offer. Instead, the Board has rejected those offers outright despite previous proposals made by the Company to the Existing Noteholders on substantially the same terms with the main exception being the higher allocation of economics awarded to the Existing Shareholders and governance rights. We find it remarkable that the Company and the Board are willing to reject a proposal that is otherwise acceptable1 over issues which relate to a gift of equity by the Existing Noteholders to the Existing Shareholders, including the Major Shareholder. 3. Assertion that the Existing Noteholders acknowledge in the Revised Final Offer an intention to dilute the Existing Shareholders The March Company Letter implies that the level of dilution of Existing Shareholders was somehow ”hidden”. On the contrary, that has been clear from the outset. If the Existing Shareholders do not want to suffer this dilution, they could either (a) refinance the Existing Notes at par plus accrued and unpaid interest or, if unable to do so, (b) inject equity at a value that implies a 10% write-off of the Existing Notes. The ability to invest equity at a substantial discount to where the Existing Shareholders could otherwise invest equity today is a further gift by the Existing Noteholders to the Existing Shareholders of this insolvent Company. The Board has either failed to read or is ignoring the sections of the Offer Letter which state the reasons for the dilution of Existing Shareholders. As is the common paradigm for restructuring scenarios and as referred to above, it is an equitisation of the debt. The Company has failed to service its existing interest payments on over €1bn of debt, has failed to service the principal due on its senior credit facility and has failed to refinance either or raise equity to provide much needed liquidity. Given these circumstances, we fail to see how the Board can logically expect Existing Shareholders to receive anything other than a gift of equity. 4. “Zero” value of the Company The Existing Noteholders do not consider that the Company’s current value is zero. We believe the Company has significant value. It is the equity of the Company that is clearly worth zero owing to the insolvency of the Company. As a result of this untenable capital structure, a capital structure irresponsibly put in place by the management and the Board of the Company, the Existing Noteholders are willing to write-off a substantial portion of their debt claim in order to create a viable enterprise. 5. The Company does not need a €400m capital injection First, this is inconsistent with the Company’s previous requests for as much as €500m new capital (including in the Codere III proposal set out in the Company’s letter of 13 January 2014). Secondly, as we have stated repeatedly, if the Company does not require that much capital, the Existing Noteholders would be happy to provide less capital. As indicated previously, simply provide us with a credible business plan that shows that the Company can survive and thrive on a reduced capital injection. 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 current management are operating the Company with insufficient liquidity today. The outcome of which is the series of defaults, failures to meet obligations as they come due and pre-concurso that the Company is suffering today. 6. Assertion that the Revised Final Offer is not subject to negotiation The fact that the Board has chosen to send the March Company Letter rather than file for concurso indicates that the Board believes the Revised Final Offer could be subject to negotiation. Not 1 See Codere III proposal put forward by the Board in its letter dated 13 January 2014 engaging with Existing Shareholders on this proposal seems an unusual stance for the Board to take given the Company’s current difficulties and the only alternative of a concurso, which will force a zero recovery on Existing Shareholders. 7. Management Control The Revised Final Offer recognises the arguments the Board describes in the March Company Letter and clearly contemplates that the existing management team remains in place with the offer of an appropriate incentive and compensation package to such key executive management members. Regardless of this, we are more than confident that if the current management team decided to step back, appropriate replacements would be found. B. Failure to respond to certain requests 1. Independent Expert The Offer Letter requested the Board immediately appoint an independent expert or to explain why it is not willing to do so. The March Company Letter does not address this. We can only infer from this lack of response that the Board does not want the Revised Final Offer to be the subject of an independent and objective test. Therefore, we reiterate our request that the Company appoint an independent expert or explain why it is unwilling to do so. 2. “Reasonableness” of the Revised Final Offer Notwithstanding the various unsustainable assertions in the March Company Letter addressed above, the Board has failed to provide any detail whatsoever on why it does not consider the Revised Final Offer as a “reasonable” one, particularly in light of the provisions of the New Insolvency Law. We can only conclude from the lack of any rational response that the Board actually views the Revised Final Offer as “reasonable” or impossible to refute as “reasonable”. We hereby request the Board to address these points in further detail so that its position is made completely (and publicly) clear. 3. Failure to put the Revised Final Offer to a shareholder vote The Offer Letter also requested that the Revised Final Offer be put to a vote of the Existing Shareholders for approval. We fail to see any genuine reason why the Board has yet again failed to do this. The fate of the Company and the prospect of any recovery for the Existing Shareholders rest in the decision whether to pursue the Revised Final Offer. Not doing so deprives the Existing Shareholders of the ability to (i) participate in a capital increase on very attractive terms (at a 10% discount to the Existing Notes) in a context where the Board alleges the valuation of the Company is higher than the Company’s debt or (ii) have certain recovery (rather than zero recovery) in a context where the Board alleges the valuation of the Company is less than the Company’s debt. We believe it is irresponsible not to allow the minority shareholders to have their voices heard. We hereby reiterate the request for the Revised Final Offer to be put to a vote of the Existing Shareholders. C. Company “Counter-Proposal” In the context of the previous Company-side proposals, putting forward the terms in the March Company Letter is illogical to us. This revised “counter-proposal” combines the worst aspects of each of the Company’s previous proposals meaning there can be no real expectation on the Board’s part that it could be supported by the Existing Noteholders. If the Board truly believes the “counterproposal” to be a credible offer, we would ask the Board to have their financial advisors publicly present a report to all Existing Noteholders illustrating why they believe this proposal to be reasonable in the context of the Company’s insolvency. To call for the impairment of the Existing Notes with absolutely no equity consideration in exchange is impossible to fathom. We believe that a consensual deal is the best alternative for all of the Company’s stakeholders and note the Board’s assertions that it is using “its best efforts to try and reach a consensual solution” in compliance with Spanish law. However, repeated statements by the Board that its responses and actions (including this latest “counter-proposal”) are “reasonable”, does not in itself validate such responses and actions as being reasonable. Indeed we have seen little evidence of this to date and are concerned that the Board’s latest proposal implies that it is no longer engaging in serious and constructive discussions with its creditors. We therefore encourage the Board (and the Subsidiary Boards) together with its key executive management and representatives of the Major Shareholder to reconsider the Revised Final Offer and indeed put this to a shareholder vote. Under the circumstances, it is a more than reasonable offer which provides for a better outcome for all stakeholders (including the Existing Shareholders) than the only other available alternative on the table: concurso proceedings. The Private Side AHC Members would welcome the opportunity to have a direct discussion with the Board in order to try and find a way forward. In our correspondence with the Board to date, we have made little progress, and the key differences in our respective positions remain un-resolved. At this juncture, given the timing constraints we all face, it seems that a direct discussion with the Board and its advisers may be the only remaining way to dispel any specific concerns that the Board may have on the implementation or legal consequences of the Revised Final Offer. Please let us know if that is something the Board would welcome. Finally we would note that we have not received any response from the Subsidiary Boards to whom the Offer Letter was also addressed. As for the Offer Letter, this letter should be read as extending not only to the Company, but also directly to the Subsidiary Boards and the companies which they respectively represent mutatis mutandis. We look forward to urgently hearing from you in light of the above. Yours faithfully ____________________________________________________________________________ ENDS
CODERE PUBLISHES LETTER SENT TO THE BOARD OF DIRECTORS
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