On 4 March, Redbridge chatted to Arnaud Winkelmann, Director of Finance and Treasury at Compagnie des Alpes, about financing and cash management in times of crisis. On the agenda were financing strategy, state-backed loans, waivers, savings, electronic payments and cash management.

– On 14 March 2020, French Prime Minister Édouard Philippe announced that all public spaces considered non-essential to the life of the country would close. What did this mean for Compagnie des Alpes?

– Arnaud Winkelmann, Compagnie des Alpes: It brought our activities to a complete standstill. Just to give you a brief summary, Compagnie des Alpes is one of Europe’s leading groups in the leisure sector. We operate the largest ski resorts in the French Alps, including Tignes, Les Arcs, La Plagne and Val d’Isère.

We also operate amusement parks, such as Parc Astérix, Futuroscope and Musée Grévin, and we are involved in complementary activities such as accommodation and travel sales, including Travelfactory, which specializes in holiday rentals and group stays.

On the evening of 14 March last year, when the Prime Minister announced that all ski resorts would close the next day, everyone who had come to spend the week in one of our resorts was unable to access the ski lifts. We thought our amusement parks would be able to reopen in early June, but before long we were thinking about how to safeguard our liquidity. After two to three weeks of lockdown, we looked into state-backed loans and weighed up the different options to ensure the group’s liquidity.

– What was your liquidity position going into the first lockdown?

– As I recall, when the crisis began Compagnie des Alpes had about €320 million in liquid assets, including an overdraft facility that was not confirmed at the time. These available funds enabled us to think ahead given that we were supposed to be in our peak period at that time of year.

– What was your debt structure like?

– Compagnie des Alpes has financing arrangements consisting of an undrawn syndicated loan of €250 million; a few bilateral bank lines in the form of amortizable term loans for an outstanding principal of €87 million; bank overdrafts of a little less than €150 million; and bond debt with two Euro Private Placements accounting for a total of €145 million and two US Private Placements  totaling €115 million.

– What was the first action you took to shore up your liquidity?

Cash forecasts! The sites provided us with forecasts based on assumptions we had agreed on, which we examined and consolidated so that we could calculate cash flow projections in three scenarios. Our objective has always been to secure liquidity from banks so that we could cope with the worst-case scenario.

– What did this exercise reveal?

– By calculating our projections, we quickly realized that the worst-case scenario would involve tensions over the covenants.  We therefore decided to pursue a two-stage strategy. First, to take out a state-backed loan to ensure the group’s liquidity. Second, to apply for bank and bond waivers.

– Why did you take the decision to proceed in two stages?

– We wanted to secure liquidity immediately, and we felt that applying for waivers would take longer. We weren’t sure whether our amusement parks would reopen in the summer, and we needed more visibility about our projections before going back to our bank and bond lenders.

– So you started the state-backed loan project in spring. How did this go?

– We started by looking into which state-backed loan we were eligible for. When we were uncertain about something, we got in touch with the Treasury and BPI (Banque publique d’investissement – French public investment bank).

With just under 5000 full-time employees, we were eligible for the standard state-backed loan. We certainly gained a month by going for this option compared with if we had opted for a Treasury state-backed loan.

– So you moved on to stage two of your plan. What made you start discussions on waivers?

– At the end of July, we began discussions on waivers with our bond holders, and these continued until September. We had waited until summer, so we’d been able to build up a picture of various things. As soon as we reopened, our sites experienced a high number of visitors. This confirmed there was strong demand for our products despite the strict health regulations. Customer satisfaction was as high as ever. Last summer, the occupancy rate in our hotels was over 90%, in line with what we saw in 2019 despite a 50% increase in the number of beds compared with the previous year.

This all gave us the confirmation we needed that our business would recover strongly as long as we were able to reopen.

– What was the impact of the first lockdown on revenue?

– Our year-end is in September. Our revenue dropped from €854 million in 2018–19 to €615 million in 2019–20. That’s a 28% decrease.

– What additional guarantees were required by the bond lenders?

–  We have introduced substitute covenants with our bond investors: a minimum monthly confirmed liquidity limit, a net financial debt ceiling of €850 million and a rolling 12-month CapEx ceiling of €190 million.

– And what about bank lenders?

– The banks didn’t ask us for anything – only the bond lenders demanded guarantees. The feeling we had was that the banks had opened the floodgates and activated an almost automatic lifting of covenants.

– Have the banks supported you during this crisis?

– Completely. First, the state-backed loan that we took out in the spring was oversubscribed. Then, we realized that the state-backed loan would not be enough and that we needed to look for more. The banks helped us to set up a seasonal state-backed loan in the fall. Banks that were not in our pool also offered us state-backed loan liquidity.

– How did the set-up of the seasonal state-backed loan go?

– The seasonal state-backed loan was a bit more complicated because we were defending a worst case scenario and we wanted to raise as much liquidity as possible. In this scenario, ski resorts remained closed all winter. This was not expected last autumn and we had to discuss this scenario fiercely with our banks, but history proved us right.

– In the end, how much money did you raise on the state-backed loan arrangement?

– We took out two state-backed loans totaling €469 million.

– Over the past year, you haven’t been solely focused on safeguarding liquidity – you’ve also been working on a project to optimize electronic payments and cash management.

– Yes, that’s right. We’ve had time during the crisis to issue a call for tenders for electronic payments and cash management in order to achieve savings.

We wanted to reduce our acquisition costs for electronic payments. We have launched a consultation to adopt a billing system for our MIF++ cards based on the interchange fee rate. We therefore conducted both a cost/savings analysis and qualitative audits to find ways to improve electronic payments within the group.

– How did the electronic payment project start?

– There is no uniformity to electronic payments across Compagnie des Alpes, so there were more opportunities for simplification than at other organizations I have worked for in the past. The subject of cards has been building up over the years. Our electronic payment system is not centralized and no one holds all the information at the group level, even if consistency is maintained within each business area.

We approached the consulting firm Redbridge for some advice on how to integrate best practices and standardize our electronic payment architecture. Several regulatory developments, including interchange fee regulations, and the prospect of substantial savings enabled us to launch the project very quickly.

The calls for tender we have launched in recent months should enable us to reduce the cost of our electronic payments and cash management by 20%.

– What target scheme did you put in place?

– First, we focused on savings. Discussions about the target architecture to achieve a uniform electronic payment system within the Group have been postponed, but we will continue to focus on setting up a standardized electronic payment system.

The main challenge of electronic payments is having a fluid process without manual processing (in a word: a modern process), that is capable of being capitalizing on the operations carried out by the marketing department. We can stick with a banking model and build something great, but this requires detailed specifications to be drawn up during the call for tenders. This approach also has the added benefit of preserving our banking relationships.

– You have secured your liquidity and achieved savings. What are your next priorities as Director of Finance and Treasury at Compagnie des Alpes ?

– The issue at hand is what to do with our state-backed loans. They’re a good financing facility, and aren’t expensive at the moment. Should we extend them, and how do we pay them off? Do we pay them back and refinance them? All of this will depend on the recovery trends, forecastings and how the ongoing crisis unfurls.

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