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Rating Action:

Moody's lowers Carrefour's long-term ratings to Baa1; stable outlook

23 Mar 2011

Approximately EUR2.1 billion in rated debt instruments affected

London, 23 March 2011 -- Moody's Investors Service today lowered to Baa1 from A3 the senior unsecured rating and long-term issuer rating of Carrefour SA ('Carrefour', or 'the company'), and affirmed the short-term (P) P-2 rating. The outlook is stable.

RATINGS RATIONALE

The rating action reflects primarily Moody's view that metrics at FYE2010 are no longer expected to be within the guidance previously given for the A3 rating, notably for gross leverage not to significantly exceed 3.5x with Retained Cash Flow to net debt remaining above 20%. Based on preliminary FY2010 results, we expect that adjusted leverage will be in excess of 4x and that the RCF/net debt metric will also fall below 20%. The deterioration in metrics versus FY2009 is the result of both the share buyback program amounting to EUR943 million in 2010, a large working capital outflow, and a significant step-up in cash restructuring charges, which are nevertheless expected to diminish going forward. Moody's further recognizes that the proceeds from the sale of the company's Thailand assets were not received until January 2011.

The company is intending to spin-off fully its Dia division of discount stores to be listed in Madrid, and also to list its Carrefour Property division, while maintaining a 75% stake in that entity. Moody's believes that the immediate impact on Carrefour's metrics from these two transactions will be marginal, while noting that earnings at hard discount performed more strongly than the group average in 2010. The Dia transaction will deconsolidate some debt as well as lease obligations, while Carrefour Property will continue to be fully consolidated, albeit with an expected step-up in dividends paid to its new minority shareholders. Nevertheless, Moody's also notes that these transactions will entail some one-off costs, in addition to which the company is increasing its capital expenditure progam as part of its Carrefour Planet strategy to upgrade its French hypermarkets. Finally, we believe that the transactions themselves reflect continued shareholder pressure, as proceeds from both transactions will be devolved to existing Carrefour shareholders.

The company's liquidity remains strong, with cash and equivalents as of December 2010 of EUR5.1 billion, and EUR3.25 billion in undrawn credit facilities maturing 2012 and 2015 with no financial covenants. As of the end of December 2010, the company reported EUR2.7 billion in short-term borrowings.

The company is deemed weakly-positioned for the Baa1 rating. The stable outlook therefore reflects on the one hand that metrics are expected to benefit from the company's growth strategy in its core markets, but at the same time to be constrained by higher capital spending in coming years and possibly one-off charges related to the pending transactions. For the current rating, we would expect gross adjusted leverage to trend back below 3.75x in the short-to-medium term with RCF-net debt at least in the high teens. In this regard, the leverage metric is expected to benefit from lower cash restructuring charges going forward. Should metrics not improve from their current levels, or if other shareholder-oriented initiatives occur, this would likely be negative for the rating or outlook. While not expected in the medium term, positive rating pressure would require adjusted leverage to trend below 3.25x and RCF/Net debt to remain sustainably in the low twenties.

The principal methodology used in rating Carrefour was "Moody's Global Retail Industry methodology", published in December 2006. The last rating action for Carrefour was implemented on 2 December 2010 when the long-term senior unsecured ratings were placed under review for possible downgrade.

Carrefour S.A., is the world's second largest retailer in terms of revenues. It retains operations in countries in Europe, Latin America, Asia and Africa, with Carrefour, Carrefour Market, Carrefour Express, Dia, and 8 à huit being among its major banners. It also operates under the hypermarket, supermarket, hard discount, convenience store and cash & carry formats.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

This rating was initiated by Moody's Investors Service and was not requested by the issuer.

This rated entity participated in the credit rating process. The rated entity or its related third party, if any, did provide the rating committee access to the books, records and other relevant internal documents of the rated entity.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources 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 a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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London
Richard Morawetz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's lowers Carrefour's long-term ratings to Baa1; stable outlook
No Related Data.
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