Casino’s Weak Profit Raises Risks for Rallye’s Debt Outlook
2020-01-17 08:55:11.612 GMT

By Albertina Torsoli and Katie Linsell
(Bloomberg) — Rallye SA’s prospects to exit creditor
protection suffered a blow after bondholders rejected its plan
and French grocer Casino-Guichard Perrachon SA reported weaker-
than-expected earnings.
The supermarket operator said earnings of its French retail
business rose 5% last year, half the rate it had forecast.
Strikes and protests in its home market weighed on sales. Casino
shares plunged as much as 13%, the steepest drop in more than a
year.
Separately, in a non-binding vote held in Paris, Rallye
failed to win support in four out of five euro bond classes, the
company said on Thursday, confirming an earlier report by
Bloomberg News.
Rallye and other Casino holding companies were placed under
creditor protection in May to save the group from collapse.
Casino’s weakening performance threatens its ability to restart
paying dividends, which have been Rallye’s lifeline, according
to Fabienne Caron, an analyst at Kepler Cheuvreux.
Under a proposal negotiated with bank lenders and issued
last month, Rallye would stagger repayments of 1.6 billion euros
of unsecured debt over 10 years, while about 1.2 billion euros
of bank loans secured against Casino shares would be redeemed by
2024. Investors have signaled they don’t want to have to wait so
long.
“The short-term risk would be to re-create a vicious
circle” in which Casino’s falling share price would restrict
Rallye’s refinancing potential, wrote Arnaud Joly, an analyst at
Societe Generale.
Rallye has pledged Casino shares to bank lenders as a
guarantee for some of its debt. If the stock falls too much,
bondholders might not have enough to cover for their holdings.
Casino’s bonds declined by the most in about three months
with the company’s 444 million euros of bonds due Feb. 2025
falling 3 cents on the euro to 85, according to data compiled by
Bloomberg.
“Casino is not investable in its current shape,” Kepler’s
Caron wrote in a note to investors.
A Paris court is set to rule on Rallye’s plan by the end of
March.
“Even if most bondholders object, it’s still up to the court to
decide,” said Anthony Giret, an analyst at Spread Research in
Lyon, France. “The alternative is liquidation, and bondholders
would be even worse off in that situation.”
Casino’s fourth-quarter French retail sales fell 1.2% on an
organic basis, worse than analysts had anticipated.The weak
results raise the risk that Casino might have missed its targets
of generation 500 million euros of free cash flow in France in
2019 and a 200 million-euro improvement in working capital,
wrote Nicolas Champ, an analyst at Barclays.
Sales would have been worse if the company had kept
consolidating results of Leader Price, a discount chain Casino
is trying to sell, analysts said.
The grocer said it’s trying to fight off the slump by
winning new customers with extended store hours. Casino has been
using self-checkout machines to leave stores open nights and
Sunday afternoons, when French regulations prohibit employees
from working. The chain said it hopes to roll out that
workaround to at least half its supermarkets and hypermarkets by
the end of the quarter.