Paris, August 06, 2020 -- Moody's Investors Service ("Moody's") has today
downgraded French grocer Casino Guichard-Perrachon SA's (Casino)
long-term corporate family rating (CFR) to B3 from B2 and its probability
of default rating (PDR) to B3-PD from B2-PD. Moody's
has also downgraded Casino's senior secured bank credit facility rating
to B2 from B1, its senior unsecured ratings to Caa1 from B3,
its senior unsecured MTN program rating to (P)Caa1 from (P)B3, and
the deeply subordinated perpetual bonds' rating to Caa2 from Caa1.
Concurrently, Moody's has downgraded the senior secured rating
of Quatrim SAS to B2 from B1. In addition, Moody's has affirmed
the Not Prime commercial paper rating and the (P)NP short term rating
program. The outlook is stable.
"We have downgraded Casino's ratings because we expect that
group leverage will remain sustainably higher than the 6x level commensurate
with the previous B2 rating, owing to additional exceptional cost
resulting from the coronavirus pandemic," says Vincent Gusdorf,
a Moody's Vice President -- Senior Credit Officer and lead
analyst for Casino.
RATINGS RATIONALE
Contrary to Moody's previous expectations, Casino's
earnings declined during the first half of 2020 despite strong like-for-like
growth in France which will cause Moody'-adjusted group leverage
(on a gross debt basis) to remain sustainably higher than 6x, the
rating agency's guideline for the previous B2 rating.
The company reported on 30 July that the EBITDA of its France Retail and
Cdiscount divisions fell to €607 million during the first six months
of 2020 from €614 million one year earlier, based on its calculations.
Casino had said on 15 May that the EBITDA of these divisions had increased
during the first quarter of 2020. Casino estimates that the coronavirus
pandemic increased costs by €130 million during the first half of
2020, including the payment of an exceptional €37 million bonus
to employees and €38m for safety, protection and cleaning.
Even though the company said it will not incur most of these costs again
during the second half of the year, the higher-than-expected
costs of the coronavirus pandemic will slow down deleveraging.
Moody's forecasts that Casino's Moody's-adjusted
(gross) debt/EBITDA ratio will decline to 6.4x in 2020 compared
to 6.8x in 2019, above the 6x threshold commensurate with
the previous B2 rating. Despite its good market positions in proximity
and online, the fastest growing segments of the French retail industry,
Casino has failed to reduce its leverage over the past five years,
contrary to Moody's expectations, and to generate meaningful
cash flows in France.
Casino was compliant with its covenant at the latest testing period.
However, Moody's anticipates that the covenant headroom under
the gross debt/EBITDA ratio will tighten significantly in the coming months.
Based on the calculation methodology set by the secured debt documentation,
this covenant stood at 6.62x on 30 June 2020 versus a limit of
7.5x before stepping down to 5.75x on 31 December 2020 then
progressively towards 4.75x on 31 December 2021. Moody's
recognises that Casino has some levers to achieve compliance such as the
closing of Leader Price's sale expected during the second half of
2020 which will reduce the covenant by 0.8x, according to
management, the asset disposal programme, the increase in
EBITDA driven by savings plans and the cash on balance sheet to repurchase
gross debt. However, as the gross debt/EBITDA threshold will
decrease going forward, Casino will still need to grow significantly
its earnings and reduce its gross debt by then to remain compliant with
its covenants.
Assuming that the secured credit facilities remain available, Casino
should have adequate liquidity over the next 12 to 18 months. Casino
France had €922 million of cash and cash equivalents as of 30 June
2020 as well as €2,331 million of available credit facilities,
of which €2,000 million will mature in October 2023.
€597 million of bonds will come due in May 2021 and €452 million
in June 2022. Casino has set up reverse factoring programs with
€1,594 million outstanding at year-end 2019 at the group
level, of which €502 million in France. Reverse factoring
in France has decreased compared to 2018.
STRUCTURAL CONSIDERATIONS
Casino France and Cdiscount had €5,776 million of debt as at
30 June 2020, including €1,000 million of senior secured
term loan B and €800 million of senior secured notes, which
are both maturing in 2024, as well as €3,809 million
of unsecured bonds outstanding issued under its EMTN program and €167
million of other debt instruments. The €1,000 million
senior secured term loan B as well as the senior secured revolving credit
facility (RCF) of about €2,000 million have share pledges on
key subsidiaries, including Monoprix SAS and Segisor, the
holding company owning the shares of Latin American operations.
The €800 million secured instruments have share pledges on Immobilière
Groupe Casino, a subsidiary owning real estate assets worth €1,000
million.
Moody's views the €1,000 million term loan B and the
€800 million senior secured instruments as having relatively comparable
security values and rates them B2, one notch above the CFR.
Moody's considers these instruments as secured but thinks that the
security package is moderate because it is mostly made of share pledges.
The €3,809 million unsecured bonds are more junior in the debt
structure, and are rated Caa1, one notch below the CFR.
The €1,350 million subordinated bonds are the most subordinated
class of debt and are rated Caa1, two notches below the CFR.
The probability of default rating is based on a 50% family recovery
assumption, which reflects a capital structure including bonds and
bank debts with financial covenants.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the rating agency's view that Casino's
Moody's-adjusted (gross) debt/EBITDA will gradually trend
towards 6x over the next 12 months on the back of debt repayments and
moderate earnings growth. This assumes that Casino will successfully
pursue its asset disposal programme, that it will not post additional
charges related to the coronavirus epidemic during the second half of
2020 and that France's earnings will improve as a result.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating agency could consider a negative rating action if Casino fails
to keep its Moody's-adjusted debt/EBITDA below 7x at the group
level or if it is unable to maintain adequate covenant headroom.
Negative pressure on the ratings could also materialise if Casino France's
free cash flows after dividends and before asset disposals deteriorate.
Moody's could consider a positive rating action over time if Casino demonstrates
an ability to reduce substantially and sustainably the gross debt of its
French operations, leading to a Moody's-adjusted debt/EBITDA
below 6x. An upgrade would also require positive free cash-flows
in France as well as an adequate liquidity, with satisfactory covenant
headroom, and more predictable financial communication.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Retail Industry published
in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
With €35 billion of reported revenue in 2019, France-based
Casino is one of the largest food retailers in Europe. Its main
shareholder is the French holding Rallye, which owned 51.7%
of Casino's capital and held 61% of its voting rights as of 30
June 2020. Casino's chief executive officer Jean-Charles
Naouri controls Rallye through a cascade of holdings.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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to a program for which the ratings are derived exclusively from existing
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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Regulatory disclosures contained in this press release apply to the credit
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At least one ESG consideration was material to the credit rating action(s)
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Vincent Gusdorf, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Jeanine Arnold
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
