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I AGREE
20 May 2013
Madrid, May 20, 2013 -- Moody's Investors Service has today downgraded to Caa3 from Caa2
the corporate family rating (CFR) and to Caa3-PD from Caa2-PD
the probability of default rating (PDR) of Codere S.A.
Concurrently, Moody's has downgraded to Ca from Caa3 the ratings
on Codere Finance (Luxembourg) S.A.'s EUR760 million
worth of 8.25% senior notes due 2015 and $300 million
worth of 9.25% senior notes due 2019. The outlook
on all ratings remains negative.
RATINGS RATIONALE
"We have downgraded Codere's CFR to Caa3 because we believe
that the company's risk of default before the end of June is very
high given that it has not yet refinanced its EUR60 million senior facility,
which matures on 15 June and which is vital in enabling the company to
continue meeting its obligations at the corporate level,"
says Iván Palacios, a Moody's Vice President -
Senior Credit Officer and lead analyst for Codere.
Before the end of June, Codere will not only have to refinance the
senior facility, but also AR$200 million worth of bank loans
in Argentina. Also on 15 June, the company will have to pay
the semiannual coupon on the euro-denominated notes, which
amounts to around EUR31.4 million. Moody's believes
that the liquidity sources currently available at corporate level will
not be sufficient to cover the repayment of the drawings under the senior
facility (EUR30 million outstanding), the notes' coupon payment
and Codere's headquarter expenses.
Moody's notes that even if Codere manages to withstand liquidity
stress by the end of June, the company faces the medium-term
challenge of having to refinance the EUR760 million worth of notes due
June 2015 in the context of a potentially still uncertain operating environment
in Argentina. In addition, Moody's believes that this
refinancing could be complicated by the overhang that results from the
Payment-In-Kind (PIK) loan issued by Masampe Holding B.V.,
a special purpose vehicle that holds a controlling stake in Codere,
and which comes due in December 2015.
In its Q1 2013 results release, Codere said that it had engaged
Perella Weinberg Partners to assist the company in the negotiation of
its upcoming maturities and advise on its broader capital structure.
In Moody's view, it is unlikely that Codere will be able to
avoid restructuring its balance sheet, which could result in a loss
for current debtholders, given the company's inadequate liquidity
position and its unsustainable capital structure. Such a debt restructuring
could be considered by Moody's a distressed exchange and,
by implication, a default under the rating agency's methodologies.
While liquidity concerns are the primary driver of the rating downgrade,
Moody's notes that Codere's year-to-date operating
performance has also been weaker than expected. In fact,
Codere lowered its full-year EBITDA guidance by around EUR15 million
(to a range of EUR270 million-EUR285 million) compared with the
previous expectations provided at the end of February. This was
primarily as a result of temporary hall closures in Mexico and the underperformance
of the company's operations in Uruguay and Colombia. If the closed Mexican halls are not reopened in the second half of the year, the company's full-year EBITDA could
be lower than the EUR270 million estimate.
Codere's Caa3 rating reflects the company's weak liquidity,
high risk of default in the near term and high adjusted leverage,
which stood at around 5.4x as of December 2012. The rating
also reflects the company's exposure to emerging market risks,
as well as its position as one of the leading gaming operators in Latin
America, Italy and Spain, and its diversification in terms
of business lines, gaming assets and geographies.
The negative outlook on the ratings reflects Codere's uncertain
operating and financial prospects in light of its inadequate liquidity
position.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody's would consider further downgrading the ratings if the company
defaults on the payment of the upcoming debt maturities and bond coupon
in June. Moody's would also consider downgrading the ratings
if Codere announces a debt restructuring involving a discounted offer
on debt components of the company's capital structure, which
could be considered by Moody's a distressed exchange and,
by implication, a default under the rating agency's methodologies.
In view of today's action and the negative rating outlook,
Moody's does not currently anticipate upward rating pressure.
However, the rating agency could change the outlook on the ratings
to stable if Codere successfully refinances in a timely manner its senior
facility and other 2013 debt maturities.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was the Global Gaming
published in December 2009. Other methodologies used include Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Codere is a multinational gaming operator engaged in the management of
gaming machines, machine halls, bingo halls, horse racing
tracks, casinos and sports betting locations in Latin America,
Italy and Spain. As of December 2012, Codere managed 56,474
gaming machine seats, 186 gaming halls (including machine halls,
bingo halls with machines, machine halls at racetracks and casinos),
1,379 betting locations and three horse racing tracks. In
2012, Codere generated operating revenue of EUR1.664 billion
and EBITDA of EUR305 million.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
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
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Ivan Palacios
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Codere's CFR to Caa3; negative outlook
No Related Data.
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