18 de enero de 2016 / 7:13 / en 2 años

UPDATE 3-Casino under pressure to reassure investors after S&P junk threat

* Says performance in France, divestment to help finances

* Strong liquidity position to help meet debt repayments

* Casino confident can execute disposal plan, Thailand sale

* Shares down 9 pct, bonds also slump (Updates shares, adds bonds reaction, dividend details)

By Dominique Vidalon

PARIS, Jan 18 (Reuters) - Shares and bonds in French retailer Casino slumped on Monday after Standard & Poor’s threatened to downgrade it to junk status, citing a high debt burden and weakness in Brazil.

Casino sought to reassure investors that it could protect its “investment grade” status following the credit rating agency’s action, which came after the retailer cut its earnings outlook last week and criticism from research and investment firm Muddy Waters last month.

But its shares fell 9 percent to fresh eight-year lows while its bonds gapped out by more than 100 basis points.

The French company said it was banking on an improvement in its domestic operating performance in 2016 as well as on a 4 billion euro ($4.4 bln) disposal plan to help its finances.

A stronger financial position would also enable it to meet its debt repayments in the coming years, Casino said in a statement.

S&P placed Casino’s long-term ‘BBB-’ and short-term “A3” debt ratings on credit watch on Friday, saying it may lower the long-term ratings “by not more than two notches”.

Casino has been in the crosshairs of Muddy Waters since December when the research and investment firm said the retailer was “dangerously leveraged” and managed only for the short term.

“Following Muddy Waters’ report, one of the biggest challenges for Casino was to maintain the confidence of the market and to avoid a self-fulfilling phenomenon,” Bryan Garnier analysts wrote.

“We believe that this (phenomenon) is precisely what is happening.”

Casino last week cut its expectations for 2015 earnings before interest and taxes amid weakness in Brazil.


With its long-term debt rating already one rung above junk status, a downgrade would cut it to non-investment grade, which would mean some big institutional investors would not be able to hold its debt.

The junk bond status would also cost Casino around 100 million euros a year in interest charges in France, eating into domestic free cashflow the group intends to use to help reduce debt, several analysts said, adding that the coupon would likely rise by 125 basis points.

“This comes only a month after S&P affirmed the company’s ratings - a stunning reversal,” Muddy Waters said in an email to Reuters responding to the agency’s move.

S&P told IFR that Casino’s rating update came in response to the company’s trading results announced last week.

S&P said it would also re-evaluate the impact of Casino’s ownership by leveraged parent Rallye, which S&P said “further restricts Casino’s financial flexibility given the need to upstream dividends to service Rallye’s net debt”.

Casino has said its dividend was affordable.

However, it pays a higher dividend than peers such as Carrefour or Britain’s Tesco. Its payout is twice Carrefour’s as a percentage of cashflows from operating activities, while Tesco cut its dividend last year amid difficult trading conditions.

Rallye owns 48.4 percent of Casino and depends on dividends from Casino to service its 2.4 billion euros of net debt. Rallye’s majority shareholder is Fonciere Euris, which in turn is owned by Finatis, both of which also have their own debt to service.

Casino launched a 2 billion euro disposal plan last month that was increased to around 4 billion with the planned sale of Thai subsidiary Big C, announced last week.

Commenting on the Thailand sale, Muddy Waters’ boss Carson Block told Reuters: “The odd timing, change of plan, and lack of detail suggest desperation on Casino’s part.”

Casino said it decided to sell Big C after receiving interest from potential buyers.

The disposal plan is aimed at substantially cutting Casino’s debt by the end of this year. It stood at 7.6 billion euros at the end of 2014. ($1 = 0.9181 euros) (Editing by James Regan and Susan Fenton)

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