Codere unit to launch scheme of arrangement, seek Chapter 15 recognition

By Sarah Lizee

Olympia, Wash., Aug. 7 – Codere SA’s English subsidiary Codere Finance 2 (UK) Ltd. issued a statement letter to holders of the existing notes co-issued by Codere Finance 2 (UK) and Codere Finance 2 (Luxembourg) SA to formally notify them of its intention to launch an English law scheme of arrangement.

The existing notes include the €500 million 6¾% senior secured notes 2021 (ISINs: XS1513765922, XS1513765922) and the $300 million 7 5/8% senior secured notes due 2021 (ISINs: XS1513776614, XS1513776374).

Existing notes amendments

Under the scheme of arrangement, the notes will be amended so that the maturity dates will be extended to Nov. 1, 2023.

Also, the interest rate for the euro notes will be increased to a mandatory 4½% cash-pay coupon plus either a further 5% cash-pay coupon or a further 6¼% PIK coupon. The interest rate for the dollar notes will be increased to a mandatory 4½% cash-pay coupon plus either a further 5 7/8% cash-pay coupon or a further 7 1/8% PIK coupon.

The covenants would also be amended to allow for additional super senior debt in the form of new notes and to include additional restrictions to covenants and baskets.

Furthermore, the notes would be amended to include a liquidity covenant requiring the parent and its restricted group members under the existing indenture to maintain a minimum of €40 million of cash, cash equivalents and undrawn committed financing available, to be tested monthly unless the consolidated net leverage ratio is below 3x or the credit rating of the existing notes is at B-/B3 or higher.

The existing notes amendments can be effected with the consent of 75% in value and a majority in number of the existing noteholders voting on the scheme.

Additional liquidity

As part of the Transaction, the group will receive €165 million of additional liquidity in form of the new notes to be issued by Codere Finance.

It is anticipated that the new notes will be issued following and conditional on sanction of the scheme and effectiveness of the existing notes amendments.

The new notes will accrue cash pay interest at 10¾%.

The new notes will be issued under the same indenture as the interim €85 million super senior notes due September 2023 issued by Codere Finance. Given the urgency of the group's immediate liquidity need, some, but not all, of the ad hoc committee, being the interim notes purchasers, agreed to purchase the interim notes following some conditions contained in a revised lock-up agreement.

Each scheme creditor will have the opportunity to purchase its pro rata share of the new notes by making an election in that respect as part of the scheme process.

Backstop agreements

In order for the group to have certainty that it will receive the funding it urgently requires from the issuance of the new notes, prior to the launch of the scheme and as part of the lock-up process, the parent entered into backstop arrangements with certain existing noteholders.

Standstill agreement

On July 23, the parent, the revolving credit facility lenders and agent entered into a standstill, amendment and waiver agreement.

The lenders provided certain waivers as part of their commitment to support the transaction and the issuance of the interim notes.

The revolver was amended so that the maturity date of the revolver is now Nov. 15, 2020 from November 2021.

Also under the standstill, the parent and certain other members of the group provided various undertakings, including to apply the proceeds of the issuance of the new notes towards the repayment and discharge in full of the revolver.

It was a condition of the revolving lenders' consent to the group incurring additional super senior debt that they are repaid in full from that debt. That said, the repayment of the revolver will improve the stability of the group's capital structure.

Lock-up agreements

On July 13, the parent, some members of the group, the ad hoc committee and the information agent entered into the original lock-up agreement. On the same date, other existing noteholders acceded to the original lock-up agreement meaning that, on the effective date, existing noteholders holding about 57.5% of the existing notes were a party to it.

In order to extend the time period provided in the original lock-up agreement to agree the documentation required for the interim notes to be issued, the relevant parties agreed to certain amendments to the original lock-up agreement.

However, as some of those consents were provided after the lock-up date, it was necessary to enter into a revised lock-up agreement in place of the original lock-up agreement reflecting those amendments and some other required and consequential amendments.

All of the initial parties to the original lock-up agreement entered into the revised lock-up agreement on July 21.

As of Aug. 5, 80.4% by value of the existing noteholders had acceded to the revised lock-up agreement.

Transaction fees

The amendments and new money term sheet contemplate the payment of some fees in connection with the transaction. The fees include the early bird consent fee, the consent fee and the backstop fee in respect of the new notes.

The early bird consent fee is available to existing noteholders who had acceded to the original lock-up agreement at or before 11 a.m. ET on July 20 and acceded to the revised lock-up agreement prior to 11 a.m. ET on the lock-up date. The fee will be equal to their pro rata share of 0.5% of the principal amount of the existing notes. Recipients of the early bird consent fee are also eligible to receive the consent fee.

Existing noteholders that acceded to the revised lock-up agreement at or before 11 a.m. ET on July 27 will receive a consent fee equal to their pro rata share of 0.5% of the principal amount of the existing notes.

The backstop providers will between them in aggregate receive a fee equal to 2.5% of the aggregate principal amount backstopped, €165 million, to be shared on a pro rata basis by reference to an individual backstop provider's backstop commitment as a proportion of all backstop commitments. The backstop fee will be paid upon the issuance of the new notes by way of deduction against the issue price of the new notes being issued to the backstop providers.

Chapter 15 recognition

In order to help ensure enforcement in the United States and to give effect to the scheme, if approved by the requisite majority of scheme creditors and sanctioned by the court, Codere Finance 2 (UK) has resolved to seek Chapter 15 recognition and to commence the Chapter 15 filing with the U.S. Bankruptcy Court.

The first hearing before the English court is expected to be held on or about Sept. 3.

All existing noteholders will vote together as a single class when considering the scheme.

“The closure of the group's physical locations for a long period coupled with lower revenue levels upon re-opening, and the fact that major live sporting events were, on the whole, suspended in a number of countries for several months, has had an adverse impact on the cash flow of the group,” Codere said in the notice.

“While the group believes the impact on revenue levels and cash flow will be temporary and has taken significant steps to provide the group with sufficient runway to return to normalised levels of free cash flow generation as it gradually re-opens all its operations, as explained further below the group urgently needs the additional funding that is being sought as part of the transaction.”

GLAS Specialist Services Ltd. is the information agent.

Cordere is a Madrid-based national gaming company.

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