Koers casino guichard

Fitch Ratings - Stockholm - 16 Apr 2024: Fitch Ratings has affirmed Casino, Guichard-Perrachon S.A.'s (Casino) Long-Term IDR at 'RD' (Restricted Default) before upgrading it to 'CCC+'. The affirmation reflects a financial restructuring that imposed a material reduction on creditors' terms compared with the original contractual conditions and that it has been conducted to avoid a probable default or formal bankruptcy. The subsequent upgrade follows the sanctioning of its financial restructuring under an accelerated safeguard procedure (sauvegarde accélérée) according to French insolvency law.

Fitch has also assigned a 'B+' rating to reinstated EUR491 million senior secured notes issued by subsidiary Quatrim S.A.S., and a 'CCC-' rating to a reinstated EUR1,410 million senior secured term loan issued by Casino.

The 'CCC+' rating reflects our view that execution risk of turning around Casino's business performance and the ensuing cash flow absorption will initially prevail over the company's lower debt burden post-restructuring, improved liquidity and expected proceeds from divestments.

We believe the French food retail market remains competitive and Casino's market position, trading relations and organisational profile have been affected by prolonged uncertainty surrounding the company's future. We expect Casino to still face material challenges in 2024 and continue to see limited visibility on the amount of cash that will be absorbed by the relaunch of the business.

Although leverage has been reduced materially through partial conversion of debt into equity, it is likely to remain within Fitch's 'CCC' median for food retailers, while we project that free cash flow (FCF) generation will remain negative and fixed charge cover will be weak.

Fitch has withdrawn the ratings on Casino's pre-restructuring senior secured term loan B, senior unsecured and subordinated notes and Quatrim S.A.S.'s senior secured notes as they have either been defeased by the procedure or reinstated in different forms.

Key Rating Drivers

Financial Restructuring Completed: Following the completed financial restructuring under the accelerated safeguard procedure on 27 March, Casino's debt was partially reinstated and partially converted into equity, resulting in over a 60% decrease in total debt quantum. As a result of the restructuring, ultimate control of Casino has changed from Rallye Group to France Retail Holdings S.à.r.l, a consortium of several investors with the majority represented by Daniel Kretinski.

Profitability Turnaround Contingent on Execution: We expect the final Casino business plan to involve sizeable investments in stores, including store personnel, marketing and, potentially, lower prices, to improve performance, regain competitiveness and recapture market share. Although we acknowledge a strengthening of the management team, revenue recovery and profitability improvements are subject to execution risk and external challenges.

Before Casino entered into French law conciliation proceedings it introduced a number of initiatives to improve store sales and profitability, but these did not succeed fully in retaining competitiveness. We assume that in 2024 Fitch-calculated EBITDA for the continuing business will not recover from the EUR307 million we estimate for 2023, with a slow recovery over 2025-2027. We calculate a 3.5% EBITDA margin in 2023, which is low versus peers'.

Changes to Business Profile Assessment: Fitch applies its Food-Retail Navigator framework to assess Casino's business profile. Post-restructuring the company exhibits smaller scale, with a reduction in diversification by both format and geography that is commensurate with the 'B' rating category, versus our business profile assessment of 'BB' before the company started running into difficulties in 2023. At the same time, Casino's store portfolio still has strong and well-recognised banners dedicated to proximity (convenience and premium) across France, and commands a strong share of the food retail market in the Paris region.

Healthier Continuing Operations: The new consolidation perimeter of Casino consists of its strongest operations in France and excludes the loss-making hypermarkets and supermarket formats, which would have required significant turnaround costs. Our rating case projects that lower debt and the positive but low EBITDA margin of its existing business should help Casino maintain EBITDAR leverage at around 8.0x in 2024, followed by gradual improvement towards 5.0x-5.5x in 2027,under our assumption that the turnaround plan is successful.

Divestitures and Equity Support Liquidity: Equity injection of EUR1.2 billion so far in 2024 has provided additional liquidity support and funded around EUR500 million of immediate expenditure and liabilities. We assume additional funds of around EUR1.1 billion from disposals in 2024. These inflows remain crucial amid a lower EBITDA forecast for 2024, as a result of additional operating spending aimed at improving sales. Disposals should also help fund higher capex intensity post-restructuring (3.0% vs. 2.0%-2.5% previously), especially in 2024 when we forecast capex to reach 3.8% of sales.

Negative FCF Forecast: Pressure on profitability from investments into regaining market share, plus higher capex, put significant pressure on cash flow generation. We forecast Casino to remain FCF- negative until 2027, when profitability should recover to 2022 levels. Slower margin improvement, as well as higher capex or any dividends, would weigh on FCF margin and Casino's credit profile.

Derivation Summary

Casino has smaller business scale and more limited geographic diversification than international food retail chains, such as Tesco PLC (BBB-/Stable).

Casino's business risk profile is positioned weakly relative to food retailers in the 'B' category such as Bellis Finco (ASDA, B+/Stable), Market Holdco 3 Limited (Morrisons, B/Positive), WD FF Limited (Iceland, B/Stable) and Picard Bondco S.A. (B/Negative), due to comparable EBITDAR but higher execution risks in its business turnaround and deleveraging.

Casino also has weaker profitability, FCF margin, financial leverage and coverage metrics. These differences in business profile and leverage result in a two-to-three notch differential in its IDR relative to peers'.

Key Assumptions

- Sales growth of 3%-4% to 2028

- Initial slow recovery of profitability at continuing operations, with 2024 EBITDA slightly below the pro-forma 2023 level

- Annual operating restructuring charges and other cash outflows for 2024-2028 as per company's November 2023 business plan, incorporating 20% of planned costs linked to hypermarket and supermarket operations

- Working-capital outflow of EUR216 million related to social charges payment in 2024

- Capex at 3.8% of sales in 2024 and around 3.0% in 2025-2028

- No dividends during 2024-2028

- Disposals with net proceeds of around EUR1.1 billion in 2024 and a further EUR350 million in 2025-2028

Recovery Analysis

Fitch's Key Assumptions on Recovery Ratings:

The recovery analysis assumes that Casino would be considered a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated in a default. We have assumed a 10% administrative claim in the recovery analysis.

We have applied a distressed enterprise value (EV)/EBITDA of 4.5x, in line with comparable businesses and reflecting the maturity and characteristics of Casino's businesses under the restricted group.

In our bespoke GC recovery analysis we consider an estimated post-restructuring EBITDA available to creditors of EUR320 million, which is broadly aligned with our forecast EBITDA for the continuing business in 2024.

We have assumed that Casino's debtholders would get an additional value of about EUR42 million in connection with a minority equity stake in Companhia Brasileira de Distribuicao S.A.. This additional EV takes into account a diluted stake in GPA after a capital increase in 2024.

Our GC assumptions would result in an outstanding recovery rate for Casino's senior secured debt leading to a Recovery Rating of 'RR1', indicating a B+' instrument rating. The waterfall analysis output percentage on current assumptions is 100% for this debt class. Following the payment waterfall, our assumptions result in no recoveries for the reinstated EUR1.4 billion senior secured term loan issued by Casino, leading to an 'RR6' and 'CCC-' instrument rating with an output percentage of 0%.

RATING SENSITIVITIES

Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

- Visibility of sustainable revenue growth in low single digits

- Clear deleveraging trend leading to EBITDAR leverage consistently below 8.0x and mitigating refinancing risk

- EBITDAR fixed charge cover trending above 1.5x

- FCF margin trending to neutral levels

Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

- Failure to turn around business profitability resulting in EBITDA margins consistently below 3%

- EBITDAR fixed charge cover below 1.2x

- Consistently negative FCF with limited prospects for improvement

- Liquidity deterioration as underlined by permanently low availability in its revolving credit facility (RCF)

Liquidity and Debt Structure

Limited Liquidity, Concentrated Maturities: Pro-forma for the restructuring and taking into account net proceeds of the equity injection, Casino's cash balance for its continuing operations as of end-2023 amounted to EUR1.7 billion. This, together with disposal proceeds, should help fund anticipated cash outflows for 2024-2026.

With anticipated negative FCF over the next three to four years, we view liquidity as limited despite no contractual maturities until 2026 and options for operational and Quatrim debt deferrals in 2026-2027. If all deferral options are exercised by the company, all debt maturities will fall on 2027-2028, but still resulting in a concentrated debt maturity profile.

Issuer Profile

Casino is a major French food retailer operating in convenience stores and wholesale e-commerce retail.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

ADDITIONAL DISCLOSURES

ENDORSEMENT STATUS