(News Bulletin 247) – The rating agency downgraded the distribution group’s rating by one notch and attached a negative outlook to this rating. She believes that Casino may struggle to maintain volumes this year as competition will remain high.

The pressure increases a little more on Casino. The distribution group saw its credit rating downgraded by one notch to “Caa1” by Moody’s against “B3” previously. The rating agency has also attached a negative outlook to this rating, which means that it could further downgrade this rating in the medium term.

Moody’s explains that its decision reflects the group’s continued losses of market share in France as well as its cash outflows, the agency pointing out that Casino burned around 900 million euros in cash on its French perimeter last year. Its debt remains high, with Moody’s calculating a ratio of adjusted gross debt to Ebitda (gross operating income) of more than 7 at group level. In value, Casino had indicated at the beginning of the month that its net debt represented 6.37 billion euros at the end of December at the group level, and 4.5 billion euros in France.

“The downgrade also reflects the company’s weak liquidity profile, which will have to rely on proceeds from its ongoing asset disposal plan to repay future debt maturities,” Moody’s added. Casino still has to refinance or repay around 1.2 billion euros of outstanding bonds by 2024 and 1.8 billion euros of outstanding debt in 2025, she said.

Cash should remain negative

The agency expects Casino to repay the 2024 maturities through asset disposals, including the recent sale of a minority stake in Brazilian group Assai for around 723 million euros. The sale of this share represented 18.8% of the capital and Casino still owns 11.7% of the capital of this company.

Incidentally, Moody’s explains that its downgrading also takes into account the fact that the sale of the stake in Assai reduces the group’s geographic diversification and increases its exposure to the French market.

But precisely, Moody’s anticipates “an increasingly difficult economic environment” for large retailers in France, with high inflation which affects consumer spending, even for food products. In this context, the agency thinks that Casino will struggle to maintain its volumes in 2023, “because inflation remains high, household confidence remains low and competition on the French market is tough”. The company’s cash generation is expected to remain negative for the next 12 to 18 months, the agency estimates.

Moody’s also briefly mentions the merger that Casino is discussing with Teract, owner of Jardiland and Gamm Vert. If it considers that this operation could strengthen the group’s presence in France, the agency stresses that “the feasibility and the conditions of this transaction remain uncertain at this stage”.

Without too much surprise, Casino continues its descent into hell on the stock market losing 8.1% around 10:15 a.m. Its parent company Rallye dropped 13.1%. Since the beginning of the year Casino has fallen by 35%.

Already Thursday, Casino had lost 9.5% after the announcements of Rallye, which had lost almost 11%.

Tight room for maneuver

Under judicial safeguard proceedings since 2019, like the other holding companies of Jean-Charles Naouri, CEO of Casino, Rallye announced that “the risk factor linked to the implementation of safeguard plans [était] increased”.

The company indicated that it was going to approach its creditors “in order to examine the possibilities and the possible modalities of the development of its safeguard plan”. Debted to the tune of 2.82 billion euros, Rallye must repay in 2025 a total of 2.067 billion of various liabilities, according to the safeguard plan. However, the execution of this plan depends mainly on Casino’s ability to pay dividends, which the distribution group does not intend to do for the 2022 financial year.

“Rallye’s room for maneuver may be tight, with banking tensions on the markets, creditors could be reluctant to give the company more time,” said a financial intermediary. For the latter, in view of recent events, “Casino could accelerate its debt reduction and its disposal plan, by selling the remainder of its assets in Latin America, or even selling assets in France”, he judges. “2023 is going to be a difficult year for Casino,” he concludes.