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Rating action

Scope Ratings GmbH (Scope) has assigned Casino Guichard-Perrachon SA (Casino) and its guaranteed subsidiary Quatrim SAS an issuer rating of BB-/Stable and senior secured debt of BB. Scope has also assigned to Casino Guichard-Perrachon SA (Casino) a debt category rating on senior unsecured debt of B+, perpetual subordinated debt (hybrid) of B- and a short-term debt rating of S-3.

Rating rationale

The rating is driven positively by an investment grade business risk profile, including diversification and market positioning, while being constrained by a weak financial risk profile impacted by high leverage and low free cash flow generation.

Casino’s business risk profile is supported by strong geographical diversification. Revenues come from a good balance between a mature market (France, representing 54%) and emerging markets (Latin America at 46%) mostly in Colombia and Brazil. Casino’s strategy is also based on a well-diversified multi-format and multi-channel offering, including e-commerce for non-food retail (Cdiscount) and food retail (Amazon partnership, Ocado technology and Gorillas dark stores). The rating is positively driven by the large size of the group, which generated EUR 31.9bn of revenues in 2020. However, Casino’s current market share in France has been decreasing over the past years as the consequence of the reduced surface in its hypermarkets, the closure of loss-making stores and the disposal of Leader Price. The group is now ranked sixth in France with an 8% market share, compared to fourth in 2018 with 11.8%. The French food retail market is characterised by its slow growth and strong competition. Four factors support Casino’s market positioning: i) its strong exposure to convenience and premiums stores (55% including Monoprix and Franprix); ii) leading positions in French fastest growing regions; iii) low exposure to declining hypermarket format in France; and iv) a very strong market share in Latin America, in Brazil (30% of food retail) and Colombia.

Casino’s profitability has been recovering over the past five years, from a Scope-adjusted EBITDA margin of 5.9% to 7.5% in 2020. This is due to the rationalisation of its store portfolio in France; an improving business environment in Brazil with the development of Assai (cash and carry); the ramp-up in profitability of Cdiscount since 2018, driven by a combined increase in gross merchandise value; and the development of its market share. Various risks could hamper Casino’s EBITDA margin, including the seasonality of business, the long-term effect of Covid-19 on the Paris area (home office and urban exodus) and fluctuating profitability and earnings in Latin American (46% of group revenues) driven by exchange rate, political and economic instability.

Scope assesses Casino’s business risk profile at BBB.

Scope assesses Casino’s financial risk profile at B+, constrained by very low to negative free cash flow generation and high leverage. Financial leverage as measured by Scope-adjusted debt (SaD)/Scope-adjusted EBITDA has averaged above 4.5x since 2015. This is mainly due to limited headroom to reduce net debt, pressured by the recurring high dividend payout (above 100%) required to service Rallye’s debt until 2019 and high interest paid. Looking forward, Scope expects leverage of 4.0x to 5.0x for the next three business years, based on the agency’s financial base case. The latter incorporates an increase in capex from GreenYellow and Cdiscount and a decreasing level of interest paid, sustained by the successful completion of the EUR 4.5bn asset disposal plan by 2023.

Liquidity is assessed as better than adequate, with the EUR 2.1bn of short-term debt maturing in 2021 fully covered by EUR 3.0bn in unrestricted cash (including the segregated account) and EUR 2.1bn in undrawn committed credit facilities.

Finally, the rating is constrained by one notch in the light of the leveraged shareholding structure created by Rallye’s large indebtedness. The deferral of payments by two years with regard to Rallye’s safeguard procedure has postponed the bulk of debt to 2025. In addition to covenants restricting the dividend pay-out, the risk of an extraordinary dividend stretching Casino’s financial structure is therefore limited in the medium term but remains. All financing documentations signed since November 2019 include a strict dividend restriction as long as gross leverage at the perimeter including France and the ecommerce exceeds 3.5x. Scope’s base case includes a dividend payment of EUR 243m in 2023 to finance the EUR 71m derivative liabilities booked at Fonciere Euris and Euris levels.

Outlook and rating-change drivers

The Outlook is Stable. This incorporates financial leverage ranging from 4x to 5.0x going forward. Moreover, the forecast assumes the successful completion of the group’s disposal plan and the maintenance of operating profitability, leading to SaD/EBITDA of 4.7x in 2021 and compliance with its revolving credit facility covenants. Any material deviations from Scope’s base case could lead to an Outlook review. The Stable Outlook also reflects an unchanged picture regarding the rating constraint related to the shareholder structure for the foreseeable future.

A positive rating may be warranted if the group improves its SaD/EBITDA to below 4.0x on a sustained basis. This ratio level could be achieved on the back of improved operating cash flow driven by lower capex or interest paid.

A negative rating action could be warranted by financial leverage of over 5.0x SaD/EBITDA on a sustained basis. Financial leverage exceeding 5.0x could, for example, be triggered by a significant deterioration in working capital, lower than expected operating profitability or a delay in the completion of the EUR 4.5bn disposal plan.

Long-term and short-term debt ratings

Scope assigns a B+ debt instrument rating to the senior unsecured debt of Casino Guichard-Perrachon SA. This instrument rating is based on a going-concern scenario as of year-end 2023, in which Scope computed a lower-than-average recovery for senior unsecured debt holders based on the agency’s assumptions of attainable going-concern values.

Scope assigns a BB debt instrument rating to senior secured debt (including the EUR 800m 2024 bond, EUR 1425m 2025 Term Loan B and EUR 2.05bn revolving credit facilities maturing in 2026 and 2023) issued by Casino Guichard-Perrachon SA and Quatrim S.A.S. The 2024 senior secured bond issued by Quatrim S.A.S is guaranteed by Casino Guichard-Perrachon SA. This instrument rating is based on a hypothetical going-concern scenario as of year-end 2023, in which Scope computed a higher-than-average recovery for senior secured debt holders based on the agency’s assumptions of attainable liquidation values of pledged assets.

Scope assigns a B- debt instrument rating to deeply subordinated perpetual debt, three notches below the issuer rating reflecting Scope’s expectations of very low recovery for such debt positions.

Scope assigns an S-3 debt instrument rating to short-term debt. As of December 2020, Casino Guichard-Perrachon has a EUR2,000m negotiable European commercial paper (NEU CP) programme used for EUR 180m. The assigned S-3 short-term rating reflects the group’s solid liquidity profile with upcoming debt maturities comfortably covered by internal cash sources, undrawn committed credit lines of EUR 2.1m and an adequate relationship with its banking pool.

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

Methodology
The methodologies used for these Credit Ratings and/or Outlooks, (Corporate Rating Methodology, 6 July 2021; Rating Methodology: Retail and Wholesale Corporates, 17 March 2021), are available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed
Lead analyst: Thomas Langlet, Senior Analyst.
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director.
The Credit Ratings/Outlooks were first released by Scope Ratings on 11 January 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.