The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings has today maintained under review for a possible downgrade its BBB- issuer rating on French consumer electronics retailer Fnac Darty S.A. The short-term debt rated S-2 and senior unsecured debt rated BBB- have also been maintained under review.

Rating rationale

Group performance recovered quickly in June mitigating the negative impacts of Q2 over the first 9-month period, with limited sales losses thanks to a successful transition to online sales channels. Scope forecasts that profitability will also rebound to a degree in 2021 but is maintaining the rating under review in order to assess the impact of the last quarter of 2020 on the group’s annual performance.

With regard to Fnac Darty’s business risk profile, Scope considers the retailer’s losses in Q2 2020 to have been fairly light. Sales have recovered quickly since June, leading to an overall sales loss of 2% in the first nine months of the year (including a strong increase in comparable third-quarter sales of 7.3%). The different business risk profile factors have remained largely unchanged since last year, given an expected improvement in market positioning (with some crowding out of weaker competitors) and the development of sales channel diversification. The group’s business risk profile was mainly affected by a drop in profitability due to: i) the forced closure of shops in Q2 2020; and ii) a decrease in its services activities, which tend to be its most profitable activities.

Financial metrics suffered considerably in H1 2020. Scope expects them to recover somewhat but to remain impaired until the end of the year. Should the group manage to recover the profitability losses incurred in the first half of 2020, Scope expects its leverage ratios to approach historical values by YE 2021. Fnac Darty still benefits from strong liquidity due to a high cash position (high historical generation as well as the undrawn state-guaranteed loan of EUR 0.5bn and a revolving credit facility of EUR 0.4bn).

Scope maintains the rating under review for a possible downgrade due to an overall lack of visibility on group performance in the last quarter of the year, which includes key shopping events such as Black Friday, Cyber Monday and Christmas. The agency believes that the French government’s recent announcement of a second lockdown may change the shopping behavior of consumers and households. Scope aims to resolve the review as soon as possible, within three months at the latest, depending on further developments. Scope may maintain the current rating if the damage inflicted by the second lockdown is less severe than that of the first in Q2 2020. A downgrade of a minimum of one notch could be triggered if the effect is more severe and is not contained within the current business year, with Scope-adjusted debt/EBITDA increasing above 3x on a sustained basis.

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for these ratings (Corporate Rating Methodology, 26 February 2020) is available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.

Solicitation, key sources and quality of information
The rated entity participated in the rating process. The following substantially material sources of information were used to prepare the credit rating: issuer, public domain and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Adrien Guerin, Senior Analyst
Person responsible for approval of the rating: Philipp Wass, Executive Director
The ratings/outlooks were first released by Scope on 18 February 2019. The ratings/outlooks were last updated on 11 May 2020.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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