September 3, 2018 / 6:15 AM / 3 months ago

S&P shunts Casino debt deeper into junk, refinancing deadline looms

PARIS (Reuters) - Credit rating agency Standard & Poor’s pushed Casino’s debt (CASP.PA) deeper into junk territory on Monday, derailing the French retailer’s efforts to reassure investors over the sustainability of its finances ahead of a repayment deadline.

FILE PHOTO: A logo of French retailer Casino is pictured outside a Casino supermarket in Nantes, France, July 20, 2017. REUTERS/Stephane Mahe//File Photo

The downgrade of Casino’s debt by a single notch from ‘BB+’ to ‘BB’ came after the French retailer’s share price plunged 15 percent on Friday, when U.S. short-seller Muddy Waters flagged a delayed regulatory filing from subsidiary Casino Finance.

Casino responded on Monday, saying the cash position of Casino Finance, which issues bonds for the retailer, stood at 801 million euros ($930.12 million) at the end of June compared with 586 million euros at end-2017. bit.ly/2wCjd12

It also said that S&P’s decision did not take into account its plan to sell assets worth 1.5 billion euros and would have no impact on its liquidity or cost of servicing its debt.

However, investor concerns about the company’s leverage have pushed the share price down to its lowest level since 1996, while the yield on its two-year bonds has surged to over eight percent and the cost of insuring its debt against default has hit a record high. <0#CASPEURAEBMK=> CASP5YEUAM=MT

“The debt and financial leverage of Casino have remained above our expectations for the ‘BB+’ rating for over two years, despite good trading momentum and management’s intentions to sell assets to reduce debt,” S&P said in a statement explaining the downgrade.

The rating agency added that the recent significant drop in Casino’s share price and the widening of credit spreads at Casino and its immediate and highly leveraged holding company Rallye (GENC.PA), pointed to an elevated refinancing risk for Rallye.

Casino on Monday confirmed its 2018 profit and deleveraging goals, citing good sales momentum in France and Latin America, initially sending its share price higher before the S&P statement reversed those early gains.

Its shares, which have shed 45 percent so far this year, traded down 0.6 percent at 27.13 euros at 1115 GMT.

OCTOBER DEBT DEADLINE

In June, Barclays said Casino was burning through cash and raised questions about the capacity of parent company Rallye to refinance debt maturing next month.

Rallye, through which Casino Chief Executive Officer Jean-Charles Naouri controls the retailer, needs to repay over 600 million euros worth of bonds in October and 300 million euros in March.

The more Casino’s shares fall, the less room Rallye has to maneuver since its credit lines require it to pledge Casino shares as collateral.

“At the current share price, assuming Rallye cannot use commercial paper anymore, close to 100 percent of the Casino shares would be pledged in October 2018, when Rallye’s financing is due. This increases the pressure on Casino to sell assets on time or faster,” said Kepler analysts in a note on Monday.

By the end of June, Casino’s net debt totaled 5.4 billion euros.

Muddy Waters said on Twitter on Friday that Casino Finance, had not filed its 2017 accounts, prompting a Casino spokesman to say that the delay was “technical”.

It is not the first time Muddy Waters has targeted Casino. In 2015 Muddy Waters head Carson Block criticized Casino’s accounting practices, saying the supermarket retailer was “dangerously leveraged” and managed for the short-term.

Muddy Waters at the time said it held a short position in Casino’s shares and credit. Casino rejected Muddy Waters’ criticism.

($1 = 0.8612 euros)

Reporting by Matthias Blamont and Dominique Vidalon, Editing by Louise Heavens, Richard Lough and Kirsten Donovan

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