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Global Credit Research - 20 Sep 2010
London, 20 September 2010 -- Moody's Investors Service has today assigned for the first time
a B1 Corporate Family Rating (CFR) and Probability of Default Rating (PDR)
to Picard Bondco S.A. (Picard or the Group), and a
provisional (P) B3 rating to the senior notes maturing in 2018,
to be issued by Picard Bondco S.A. (Picard's bond
issuing vehicle). The outlook on the CFR is stable.
This is the first time Moody's has assigned a rating to the company.
Moody's issues provisional ratings in advance of the final sale of securities
and these ratings reflect Moody's preliminary credit opinion regarding
the transaction only. Upon a conclusive review of the final documentation,
Moody's will endeavour to assign a definitive rating to the notes.
A definitive rating may differ from a provisional rating.
The B1 CFR reflects Picard's leading position in the French frozen
food market, its strong brand recognition and its record of continuous
market share gains. Picard's market benefits from relatively
high entry barriers and proved resilient during the recent economic downturn.
Its business model, which is focused almost exclusively on private
label products, enables it to generate high margins.
The B1 CFR is expected to be constrained, however, by the
relatively high adjusted pro forma leverage once the acquisition of Picard
by Lion Capital is finalized, and by Picard's relatively small
scale and geographic scope. Moody's estimates that on a pro forma
basis for this transaction, gross leverage, as adjusted by
Moody's and principally for lease commitments, should be around
Moody's expects that under its new ownership, Picard will focus
on growing its presence in its French core market, in particular
through opening stores in Paris and in large provincial agglomerations.
Picard also targets potential marketing efficiencies, an increase
of on-line sales and an extended product range to support its future
Picard's liquidity is expected to be satisfactory. Further
to the issuance of the senior notes (to finance Lion Capital's acquisition
of Picard), Picard's liquidity will consist principally of
an undrawn EUR50 million revolving credit facility (RCF) maturing in 2016.
Moody's notes the strong seasonality of cash flows, with a
peak during the Christmas period. This is mitigated by Picard's
adequate liquidity position throughout the year (historically, it
has not used its RCF). Picard has consistently generated free cash
flow in the past as a result of limited capital expenditures and modest
working capital requirements.
Picard's bank debt (Term Loan A, Term Loan B and the RCF)
will be secured on a first-ranking basis by pledges over shares
and benefit from first-ranking guarantees. The senior notes
will be secured on a second-ranking basis by pledges over shares
and benefit from guarantees on a senior subordinated basis as set out
in the Intercreditor Agreement. The senior notes are therefore
rated two notches below Picard's CFR at (P)B3. The notes'
indentures include a change of control clause as well as restrictions
on, inter alia, certain payments, additional debt,
liens and sale of assets.
To maintain the B1 CFR, Moody's would expect Picard to de-leverage
to below 6.0x in the next 18 months, to maintain its EBITA-to-interest
ratio at around 2.0x, and to generate at least EUR50 million
of free cash flow annually. The stable outlook reflects Moody's
view that, while the leverage ratio is considered somewhat high
immediately following the transaction, Picard will be able to improve
this largely through internally generated growth and cash flows used for
term loan amortisation and cash sweeps. While not expected in the
short term, upward pressure could result if gross leverage decreases
towards 5.0x and EBITA-to-Interest increases towards
2.5x. Alternatively, downward pressure could evolve
if: (i) Picard cannot demonstrate a trajectory of deleveraging to
below 6.0x in the next 18 months; (ii) EBITA-to-interest
decreases towards 1.5x; or (iii) its liquidity profile deteriorates.
The principal methodology used in rating Picard was Moody's Global Retail
methodology published in December 2006 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Rating tab. Other methodologies and factors that may have been
considered in rating Picard can also be found in the Rating Methodologies
sub-directory of Moody's website.
In July 2010, private equity firm Lion Capital was granted a period
of exclusivity for the purposes of reaching a definitive agreement to
acquire Picard through a tertiary buy-out from BC Partners,
which had owned the company from 2004.
Picard, based in Issy-les-Moulineaux, is the
leading specialist retailer of frozen foods operating mostly in France
through a network of 842 stores as of March 2010. The company generated
EUR1.1 billion and EUR158 million in revenues and EBITDA,
respectively, in the financial year ending 31 March 2010 based on
French GAAP (EUR1.2 billion and EUR164 million in revenues and
EBITDA, respectively, based on LTM 30 June 2010 IFRS figures).
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
confidential and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's assigns a B1 CFR to Picard; outlook stable
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