CODERE PUBLISHES LETTER SENT TO THE BOARD OF DIRECTORS

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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
 
 
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