Coty : Update following sale rumours and bleaker business environment

We are updating our assessment of the group's credit quality and our recommendations in the light of two recent developments:
1/ The bleaker operating environment since the beginning of the financial year, which is expected to slow the deleveraging process for at least a year. A rebound in growth and EBITDA is not expected before H2 2025-26 (calendar H1 2026). Leverage is expected to steady over the three months to end-June 2025 (i.e. -0.1 pt y/y, to 3.2x) and the consensus expects a decrease of 0.3 pts at end-June 2026 (subject to the 2025-26 guidance being met). We are therefore revising our credit opinion to Stable vs. Positive to reflect this slowdown, which makes it highly unlikely that the group will obtain an IG rating in the near term. Any further delay in the outlook for earnings improvement could delay this possibility even further.
2/ Rumours of a plan to split the group into two parts emerged in June (WDD), raising misgivings about the group's stabilisation and vulnerability after the hard work undertaken since 2020 to turn around profitability and pay down debt. Although the likelihood of such a scenario cannot be taken for granted at this stage, we shall in this report spell out the impact that the various possible scenarios could have on the bonds depending on the provisions contained in their documentation.