Moody’s sends France’s Casino deeper into junk territory with two-notch downgrade

Moody’s has cut French grocer Casino’s credit rating even further into junk territory, with the rating agency raising fresh concerns over retail group’s high debt levels and worsening cash flow.


Casino, which has come under attack from short sellers in the past year, saw Moody’s downgrade its credit rating two notches to Ba3 on Tuesday, putting the retailer three levels below investment grade. The outlook remains negative. The move comes after the group’s other rating agency S&P downgraded its debt in September.

“The three cash flows generated by Casino’s French operations fell well below Moody’s previous expectations, limiting the company’s ability to reduce its gross debt despite large asset disposals,” said Moody’s analyst Vincent Gusdorf, who also flagged the “persistently high leverage” of Casino’s parent company Rallye as an important in the downgrade.

The rating agency calculates that Casino booked more than €700m of negative free cash flow in France, after interest payments and dividends, while its debt levels rose to more €9nb.

Several equity analysts have also recently voiced concerns around the retailer’s cash flow situation. Analysts at Bernstein said on Monday that Casino’s free cash flow was worse than they had anticipated – even in their bear case – while also arguing that the company’s recently completed asset sales were not bringing down its debt levels fast enough.

“We don’t see an end in sight yet to the continual cash drainage in the French business, but rather additional risk from an increasingly hollowed-out business,” the analysts said.

Casino said in a public statement on Tuesday that Moody’s downgrade did not take into account its plans to continue asset disposals and further reduce its bond debt in future.

“[Casino] also plans to generate, beyond and above this disposal plan, free cash flow in France of €500m per year, enabling it to cover its dividends and financial expenses,” the company said.

Concerns around Casino’s ability to continue paying dividends has made it a magnet for short sellers, who look to profit from an expected fall in a company’s share price. Chief executive Jean-Charles Naouri – a stalwart of the French establishment – controls the group through three publicly listed investment holding companies. These entities each have their own debts, putting pressure on them to keep paying dividends up the chain.

While the group’s shares have rallied more than 50 per cent from lows hit in September, nearly a third of Casino’s freely available shares are still on loan to short sellers, according to data from IHS Markit. This makes it one of the most heavily shorted stocks in Europe.

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