Casino’s €500m credit spread warrants
Dresdner Kleinwort Wasserstein was sole lead manager
In May 2004, French supermarket group Casino issued the first ever credit spread warrants (CSWs), based on €500m of to-be-issued Casino bonds, scaled up from €400m. The warrants give investors the right to buy 10-year Casino fixed rate bonds in December 2004 at a pre-determined yield of mid-swaps plus 85bp.
Casino’s CSWs were the first ever corporate issue of credit call options on corporate bonds. The issuance enabled Casino to take advantage of historically tight credit spreads without issuing bonds at the time. The CSWs offer investors non-linear exposure to Casino credit risk with limited downside from spread widening while maintaining the full upside from potential spread performance.
Knowing its funding needs ahead – and with cost-of-carry making pre-funding prohibitive – Casino was able to take advantage of good market conditions in May. This innovative transaction has moved the goal posts for corporate liability management, introducing a way for corporate issuers to hedge against the widening of credit spreads and monetise credit spread volatility.
