Codere inks lock-up agreement, sets balance sheet restructuring terms

By Caroline Salls

Pittsburgh, Sept. 23 – Codere SA entered into a lock-up agreement that sets the key terms of the Codere group’s balance sheet restructuring, according to a news release.

The other parties to the agreement are Codere Finance Luxembourg, SA, the issuer of the group’s €760 million of 8¼% senior secured notes due 2015 and $300 million of 9¼% senior notes due 2019; some other companies of the Codere group; holders of 80.2% of the euro notes and 88.9% of the dollar notes; consenting noteholders that have agreed to backstop the entire amount of a new facility; consenting noteholders that have agreed to backstop the entire amount of a new cash notes subscription; and original shareholder parties Jose Antonio Martínez Sampedro, Javier Martinez Sampedro, Encarnacion Martínez Sampedro, Ma Carmen Martinez Sampedro and Masampe Holding, BV.

In addition, Codere said it agreed to the terms of a separate standstill and cooperation agreement with the lenders under its Oct. 19, 2007 senior facilities agreement.

Under the lock-up agreement, the restructuring must be implemented within nine months, subject to an extension to no later than 11 months from Sept. 23.

The consenting noteholders have agreed not to enforce any default-related rights on the notes, and the company parties agreed not to take specified corporate actions without the consent of two or more consenting noteholders holding a total of more than 50% of the existing notes.

Each consenting noteholder will have the opportunity to provide its share of new funding through the new facility and new cash notes subscription.

Restructuring terms

Codere said it intends to complete the restructuring via a scheme of arrangement under the U.K. Companies Act 2006.

Under the scheme, the company will obtain approvals for a five-year €253 million first-lien term loan facility, which, together with the proceeds of the new cash notes subscription, will replace the existing senior facilities agreement and provide financing for future working capital and projects.

The new facility will bear interest at Euribor plus 700 basis point, subject to a 1% floor. The upfront premium will be 1% payable in cash or original issue discount, and the backstop premium will be 2%, payable in cash.

The scheme also calls for the issuance of €675 million of new notes, consisting of €350 million in new second-lien notes and €325 million in new third-lien notes.

The new notes will be issued by a newly incorporated special purpose vehicle within the Codere group and will mature in 5.25 years. The interest rate on the second-lien notes will be 5½% paid in cash and 3½% paid in kind, and the interest rate on the third-lien notes will be 9%, paid in kind.

The new issuer will issue €200 million of new second-lien notes for a cash subscription.

According to the release, existing noteholders will exchange €475 million principal amount of existing notes for €150 million of new second-lien notes and €325 million of new third-lien notes.

The remaining claims of existing noteholders for principal and interest, amounting to a total of €636 million, will be converted into 97.78% of the ordinary issued share capital of Codere, leaving existing shareholders with 2.22%.

Immediately following the note capitalization, the existing noteholders will re-allocate the equity so that 61.2% is held by existing noteholders participating in the new cash notes subscription, 10% by backstop notes parties, who will also be entitled to a fee equal to 5% of the total amount of the subscription, 1% by new facility backstop parties, who will be entitled to a 2% cash backstop fee, 4% by second-lien noteholders and 2% by third-lien noteholders.

Executive shares

Also, to preserve the value of the new notes and maximize future value creation in the equity of Codere, the company said the existing noteholders believe that key executives Jose Antonio Martinez Sampedro and Javier Martínez Sampedro invest in restricted shares of the restructured Codere in order to align their economic interests on a permanent basis and preserve their ownership.

As a result, as a condition of the restructuring, each existing noteholder will sell to the key executives 19.58% of the ordinary issued share capital of Codere for a fair market post-restructuring value of not less than €500,000.

The purchase price payable to the existing noteholders will be fully financed through a purchase note to be issued to them with a five-year term.

Warrants

The percentage shareholdings will be further diluted by the subsequent issuance of 2% of the fully diluted equity of Codere to a global coordinator by way of a fee and the exercise of warrants to be issued to management under an incentive package.

If exercised, the management warrants would result in a further issuance of shares resulting in a further 5% ownership interest issued to the key executives struck at an exercise price that provides for an implied recovery on the existing notes of 100% of all outstanding principal and interest immediately before completion of the restructuring and 5% ownership interest issued to other members of the executive management team at the same strike price.

The first-tranche warrants will expire 18 months after completion of the restructuring.

New board

At completion of the restructuring, the shareholders will appoint a new board of nine directors, which will consist of Sampedro, two additional directors nominated by the key executives, five non-executive directors nominated by the existing noteholders who are part of a core equity group and one non-executive director nominated by existing noteholders who are not part of the core group and the key executives.

Noteholders who want to consent to the agreement must do so by the close of business on Oct. 14 in order to be eligible to receive an early consent fee equal to 0.125% of the face principal amount of the existing notes held and by the close of business on Sept. 30 in order to participate as a backstop party.

Codere is a Madrid-based gaming company.

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