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Rating Action:

Moody's assigns a B1 CFR to Picard; outlook stable

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.

RATING RATIONALE

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 6.3x.

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 growth.

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).

REGULATORY DISCLOSURES

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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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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London
Marika Makela
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Chetan Modi
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.
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Moody's assigns a B1 CFR to Picard; outlook stable
No Related Data.
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