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Rating Action:

Moody's downgrades Casino's ratings to B3; stable outlook

06 Aug 2020

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 debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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 agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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

No Related Data.
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