Fitch Ratings affirms Casino Guichard-Perrachon's long-term issuer default rating, senior unsecured rating at BBB-, reflecting expectation that retailer will maintain its financial flexibility
July 19, 2012
– Fitch Ratings has affirmed Casino Guichard-Perrachon SA's (Casino) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB-' and Short-term IDR at 'F3'. Fitch has also affirmed Casino's EUR600m perpetual preferred constant maturity swap securities at 'BB'. The Outlook on the Long-term IDR is Stable.
The affirmation reflects Fitch's expectations that Casino will maintain its financial flexibility by pursuing asset disposals to compensate the potential acquisition of the 50% stake in Monoprix (expected to be completed in 2013). Fitch also gets comfort from the group's cleaner structure as a result of controlling its Brazilian retail subsidiary Grupo Pao de Acucar (GPA). Fitch expects Casino's credit metrics to slightly improve in 2012 but remain steady in 2013 despite Fitch's expectations of modest free cash flow generation.
"A successful execution of Casino's assets disposal plan in a timely manner that would improve the group's credit metrics in 2012 is key to maintaining the investment grade rating and Stable Outlook," says Johnny Da Silva, a Director in Fitch's European Retail Leisure Consumer Products team. The ratings headroom is low at 'BBB-' as its net debt/FFO ratio of 4.3x as at FYE11 (3.9x based on EBITDAR) is weak for the rating when adjusted by operating leases, hybrids, existing total returns swaps, put options and proportional consolidation of GPA.
In addition to the EUR1.5bn of planned asset disposals for 2012, Fitch believes that Casino will need to make further divestments in France because of anti-trust issues associated with the acquisition of the 50% stake on Monoprix from Galerie Lafayette for EUR1.2bn by October 2013 due to Casino's strong market share in some cities in France.
Fitch expects Casino's overall trading performance to improve in 2012, driven by the good performance of its international operations and effect from changes in consolidation scope (including GPA). However, Fitch believes that Casino's operating performance will remain under pressure in France, notably from its non-food activities at Geant Casino. This is due to weak consumer demand and tough competition from other food and non-food retailers, specialist retail chains and the internet.
Currently there is low rating headroom. Fitch computes and monitors Casino's leverage ratio encompassing all of its debt-like obligations (hybrid, Total Return Swaps (TRS) on 3% of GPA's capital, operating leases and various put options) on an FFO and EBITDAR basis. Fitch also notes that Casino will fully consolidate GPA in its 2012 accounts even though it will have an economic exposure of 51.1% of GPA's capital (through all put options and the TRS). However, Fitch will only include GPA's accounts proportionally in its leverage ratios.
Casino's liquidity remains adequate. Fitch estimates that the group had EUR2.2bn of undrawn available committed bank lines as of June 2012. Such available source of external financing along with existing net cash balances of EUR3.3bn (net of overdrafts as at FYE11) are sufficient to cover about EUR0.2bn and EUR0.7bn of bonds maturing in 2012 and 2013 respectively.
Casino's parent company, Rallye, presently also has got sufficient liquidity. Despite the level of debt at its parent, the agency does not expect Rallye to significantly constrain Casino's de-leveraging financial policy in the near-term, for example by demanding a higher dividend cash pay-out.
WHAT COULD TRIGGER A RATING ACTION
Positive: Future developments that may, individually or collectively, lead to positive rating action include a simplification of the group's structure derived from a successful execution of the transactions recently agreed along with an increase in like-for-like sales growth and sustained group's operating margin of at least 4%, de-leveraging through an adjusted net debt/FFO ratio (including GPA proportionally) falling permanently below 3.5x and adjusted FFO fixed charge above 2.7x.
Negative: Future developments that may, individually or collectively, lead to negative rating action include evidence of negative like-for-like sales growth for the group and significant EBIT margin erosion combined with FFO adjusted net leverage remaining above 4.2x (4x on EBITDAR based).