Codere Gets Loan to Refinance as Bond Coupon Deadline Looms

Codere SA, the Madrid-based gaming company that didn’t pay a bond coupon last month, agreed terms on a 99 million-euro ($128 million) six-month loan to replace debt that fell due in June.

The facility, which replaces a 60 million-euro credit line, pays either 8.5 percent or 7.5 percent more than benchmark rates, whichever is higher, according to a company filing. Lenders, which Codere didn’t identify, will allow the company to use the new borrowing to pay the missed coupon.

Codere has until July 15 to make the interest payment and has been in talks with Canyon Partners LLC and GSO Capital Partners LP, a unit of Blackstone Group LP, to provide the refinancing. The loss-making company, which has about 1 billion euros of bonds outstanding, has been hurt by a fall in profits from its business in Argentina, where it generates more than a third of revenue, and gambling rules in Mexico.

“The company may pay the June coupon in July, but the other coupons are at threat,” Ivan Palacios, an analyst at Moody’s Investors Service in Madrid, said in a telephone interview. “We think the most likely outcome is that there will be a restructuring well before 2015.”

The cost of insuring against default on 10 million euros of Codere’s debt for five years fell by 200,000 euros to 4.5 million euros in advance and 500,000 euros annually, according to CMA prices at 9 a.m. in London. That signals an 85 percent chance of default within that time, assuming bondholders recover 40 percent in the event.

August Payment

Codere is due to pay interest on its $300 million of 9.25 percent bonds on Aug. 15, with a 30-day grace period, according to data compiled by Bloomberg. If the company pays the coupon then it must also repay the new loan, according to today’s statement.

“It’s a bit odd to provide a facility that doesn’t give the company much time or ground to sort itself out,” said Roman Gaiser, who oversees 2 billion euros of bonds as head of high yield at Pictet Asset Management SA in Geneva. “If the company isn’t able to raise more funding by September 15, it seems like they will be unable to pay the coupon on the dollar bonds, and hence default.”

Codere was downgraded to ‘Selective Default’ by Standard & Poor’s on June 21 after it failed to pay 31 million euros of interest due on its 760 million euros of 8.25 percent notes maturing 2015. The company had a further 30 days to make the payment.

A total of 2,753 credit-default swaps contracts covering $415 million of Codere’s debt were outstanding as of June 28, according to the Depository Trust & Clearing Corp. There were 74 trades covering $176 million of the company’s debt last week.