Eroski Negotiates Debt Restructuring to Strengthen Capital Structure

Eroski once again knocks on the doors of banks and funds to shore up its capital structure four years after having saved its great match ball financial. The Basque supermarket chain has started negotiations to restructure its 750 million in debt. Their plans include issuing a bond of between 400 and 500 million and signing loans for 250 million involving both the Spanish banks, which sold the group’s debt, and national and regional public institutions, according to financial sources.

Eroski signed a defining operation for his future in 2019. It managed to refinance its 1,500 million liabilities and shield its historic cooperative structure to save a complicated financial situation that had been dragging on since the crisis, when it accumulated 4,000 million liabilities. In exchange, the creditors demanded that he divest from some businesses, such as Caprabo, where he sold 50% to the Czech magnate Daniel Kretinsky. It has also sold its travel agencies to W2M, an Iberostar firm. And it has made other minor sales, from its hypermarkets and from 27 supermarkets.

This transaction freed Eroski to meet any maturity of its liabilities until 2024. It structured the debt in two tranches. One of 1,000 million, with a Euribor coupon plus 2.5%. And another 540 million, in a bullet-type loan, which expires in 2027 and a maximum interest of 0.5%.

In these years, Eroski has shown its creditors that it has more than fulfilled its promise in 2019. According to its latest annual accounts, it repaid 43 million in 2021, which allowed the banks to forgive another 250 million. Currently, the group’s liabilities amount to 750 million, of which 500 million mature next year and 200 million in 2027.

Just one year before a good part of this liability expires, on July 31 of next year, Eroski has gotten down to work. He has commissioned Evercore for new funding. The bank has designed a structure that allows it to escape the yoke of the funds, which acquired the debt from the banks, and fits in with the operational improvement of the business and the new reality of the group. Hayfin, DK and CrossOcean are the main creditors.

The bank has designed a new debt structure divided into two tranches. A first part, of between 400 and 500 million, with the issuance of a bond. The company is currently working with the rating agencies to obtain a rating for the company, which will clearly be below investment grade. For the moment, it has already given the mandate to BNP Paribas and Deutsche Bank as global coordinators of the issue, while the Spanish banks are shaping up to work in a second step. The idea is to launch the placement after the summer to achieve a price that does not exceed 8%.

The rest of the amount, up to 250 million, will correspond to credits. To do this, the company is probing the return of Spanish banks to the company, after having fled and sold their debt to the funds a few years ago. It also hopes that both the ICO and the Basque business support organizations play a relevant part in this section. And that they encourage national banks to participate.

Eroski is trying to find a capital structure, therefore, more suitable for improving its business, with ebitda expected to reach 300 million euros at the end of this financial year. The objective is to reduce the cost, but fundamentally to free themselves from the conditions of disinvestment and early amortization that forced them to undertake the funds. Eroski confirms that it is exploring different alternatives to refinance its debt.

In 2021, the company entered the positive path and returned to profit after the losses of the previous year and registered its best result in 14 years. It earned 105 million in that year with income of 5,116 million and ebitda of 260 million. In 2022 the results were somewhat worse. Revenues were 5,500 million euros, but profit fell by 40% to 64 million due to rising inflation.

In that year, in addition, the company changed its leadership. Rosa Carabel took over as CEO, replacing President Agustín Markaide, who had been in charge of the supermarket chain for 11 years.

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