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

Rating action

Scope Ratings GmbH (Scope) has downgraded its issuer rating on Casino Guichard-Perrachon S.A. (Casino) and its guaranteed subsidiary Quatrim S.A.S. to B+/Stable from BB-/Stable. Scope has also downgraded its short-term debt rating to S-4 from S-3, senior unsecured debt rating to B from B+, senior secured debt rating to BB- from BB and subordinated (hybrid) debt rating to CCC from B-.

Rating rationale

The downgrade is driven by reduced visibility on the financial risk profile and the amplitude of deleveraging that would justify a higher rating. On a consolidated basis, Casino’s leverage has significantly increased in 2021 to 5.7x from 4.6x, back to its 2019 level. The EBITDA margin was impacted by the Covid-19 pandemic leading to a lack of tourists in dynamic regions such as south-eastern France and Paris in addition to lower-than-expected EBITDA for its e-commerce subsidiary Cdiscount. In 2022, Casino completed around EUR 1.6bn of divestments along the disposal of its majority stake in GreenYellow and a minority shareholding in Assai. Scope anticipates a net debt reduction in 2023 following the completion of the EUR 4.5bn asset disposal plan, while this plan still entails execution risks. These risks are mitigated by the company having disposed EUR 4.1bn of assets between 2018 and 2022. Potential disposals including additional divestments both in France and Latin America, such as the monetisation of Exito, could further reduce Casino’s indebtedness.

Scope assesses Casino’s business risk profile at BBB. Casino’s business risk profile is supported by strong geographical diversification. Revenues come from a good balance between the mature French market (representing 53%) and emerging markets (Latin America representing 47%), mostly 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 group’s large size, as displayed by EUR 31.0 bn of revenue in 2021. However, Casino’s current market share in France has been decreasing in recent 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 seventh in France with a 7% 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 mitigate Casino’s weakened market share: i) its strong exposure to convenience and premium stores (55% including Monoprix and Franprix); ii) leading positions in France’s fastest-growing regions; iii) low exposure to the hypermarket format, which is declining in France; and iv) a very strong market share in Latin America, especially Brazil (second with 26%) and Colombia (34%).

Casino’s profitability has been recovering over the past six years, from a Scope-adjusted EBITDA margin of 5.9% to 7.0% in 2021 (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 an increase in gross merchandise value; and the increase in its marketplace. However, various risks could hamper Casino’s EBITDA margin, including the seasonality of business with a strong reliance on summer holiday sales during the second semester; inflation; energy prices; and fluctuating profitability and earnings in Latin America driven by exchange rate, political and economic instability.

In H1 2022, Casino’s revenue improved by 9.6% in comparison to H1 2021. Nevertheless, EBITDA dropped by 3.8% to EUR 956m. Low Q1 2022 sales for food retail in France constrained EBITDA and an adverse business environment for Cdiscount partially offset the progression of the Latin American business through Assai. Consequently, the EBITDA margin decreased to 5.9% from 6.7% in H1 2021 Since Q3 2022, French retail (excluding Cdiscount) has been recovering and Latin American business is still performing well (+11.2% in revenue as of Q3 2022). Scope anticipates that Casino will be able to at least stabilise its operating margin to above 7%. The French retail environment is expected to remain challenging due to inflation forecasted above 10% in 2023 for the cost of goods sold and an increase in the overall expenses from salaries and energy prices. The company’s sustained profitability will likely rely on its capacity to pass on price increases to customers while facing limited decrease in sales volume. Moreover, the group is implementing multiple cost savings to offset inflation, including a reduction of headcount, limited energy price increases secured by contracts with GreenYellow, and optimised transportation costs.

Scope’s assessment of Casino’s financial risk profile remains at B+, although it is weaker overall. It is still constrained by volatile free operating cash flow and high leverage. For the rating case, Scope considers consolidated figures. Financial leverage as measured by Scope-adjusted debt/Scope-adjusted EBITDA has averaged above 4.6x since 2015. This is mainly due to limited headroom to reduce net debt, pressured by low free operation cash flow, excluding disposals, and high interest payments. Scope expects leverage to decrease thanks to a recovering EBITDA, but to remain above 5.0x in 2022. EBITDA is expected to improve thanks to growth momentum both in France and Latin America as well as successful cost restructurings. Debt protection as measured by Scope-adjusted EBITDA/net cash interest has decreased to below 3.0x in 2021. Following early debt repayment fees, debt protection will likely remain under pressure in 2022 before recovering to above 3.0x in 2023. The cumulative amount of bond repurchases reached EUR 365m in 2022 in addition to EUR 149m of Segisor’s loan. Excluding disposals, Casino exhibits low free operating cash flow driven by large lease payments, episodes of negative working capital and high interests paid. Looking forward, with the positive impact of additional divestments and stable capex, cash flow cover, as measured by Scope-adjusted free operating cash flow/debt, will likely increase to above 10% in 2022 before decreasing to below 5% in 2023. Divestments have been part of Casino’s strategy since 2018, implying a possibility of additional disposals in 2023 and 2024. These disposals are exclusively done in the interest of deleveraging. The 2015-2021 average cash flow cover, including disposals, stands at 7%.

Liquidity is assessed as adequate with the EUR 1.1bn of short-term debt maturing in 2022 fully covered by EUR 2.6bn in unrestricted cash (including the segregated account) and EUR 2.0bn in undrawn committed credit facilities.

Finally, Scope has lowered Casino’s issuer rating by one notch in light of the complex shareholding structure and the current safeguard procedure faced by Casino’s parent company Rallye and its holding companies (ESG factor). Rallye’s large indebtedness remains unchanged, and the bulk of debt is still due in 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 short 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 no dividend payment until 2024.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

The Outlook is Stable. This incorporates financial leverage ranging from 5.0x to 5.5x going forward. Moreover, the forecasts assume the successful completion of the group’s EUR 4.5bn disposal plan and the maintenance of operating profitability, leading to Scope-adjusted debt/EBITDA of 5.1x in 2022 and compliance with its revolving credit facility covenants. While Scope’s forecasts assume that leverage could decrease to below 5.0x in 2023, there are factors preventing Scope from issuing a Positive Outlook, including execution risks of the disposal plan and pressured EBITDA in its French business. The Outlook also reflects the assumption that the disposal strategy followed by Casino will not affect Scope’s assessment of the business risk profile. Any material deviation 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 (Rallye) for the foreseeable future.

A positive rating action could be considered if leverage (Scope-adjusted debt/EBITDA) decreased to below 5.0x on a sustained basis. This could be triggered by improved operating cash flow driven by higher EBITDA or lower interest paid.

A negative rating action could be warranted by leverage sustained over 5.5x. This could be triggered by a difficult business environment in France, which could pressure EBITDA and free operating cash flow. A negative rating action could also be considered if the business risk profile deteriorated following transforming asset disposals.

Long-term and short-term debt ratings

Scope has downgraded Casino Guichard-Perrachon S.A.’s senior unsecured debt rating to B from B+. This rating is based on a going-concern scenario as of year-end 2024, in which Scope computed a below-average recovery for senior unsecured debt holders.

Scope has downgraded the rating on senior secured debt (including the EUR 800m 2024 bond, EUR 1.425bn 2025 Term Loan B and EUR 2.05bn revolving credit facilities maturing in 2023 and 2024) issued by Casino Guichard-Perrachon S.A. and Quatrim S.A.S. to BB- from BB. The 2024 senior secured bond issued by Quatrim S.A.S. is guaranteed by Casino Guichard-Perrachon S.A. This rating is based on a hypothetical going-concern scenario as of year-end 2024, in which Scope expects an above-average recovery for senior secured debt holders based on the agency’s assumptions of attainable liquidation values of pledged assets.

Scope has downgraded Casino Guichard-Perrachon S.A.'s subordinated (hybrid) debt rating to CCC from B-, three notches below the issuer rating reflecting Scope’s expectations of very low recovery for such debt positions.

Scope has downgraded its short-term debt rating to S-4 from S-3. As of December 2021, Casino Guichard-Perrachon S.A. has a EUR 2,000m negotiable European commercial paper (NEU CP) programme used for EUR 308m. The short-term rating reflects the group’s adequate liquidity profile with upcoming debt maturities covered by internal cash sources, undrawn committed credit lines of EUR 1.8bn 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, (General Corporate Rating Methodology, 15 July 2022; Retail and Wholesale Rating Methodology, 27 April 2022), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 (Outlooks) were 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, Associate Director 
Person responsible for approval of the Credit Ratings: Sebastian Zank, 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
© 2023 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.