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Rallye - Rating Report

Rallye is the controlling shareholder of listed food retailer Casino, Guichard - Perrachon (‘Casino’), hold-ing 51.1% of shares (of which 31.9% directly) and 63.6% of voting rights. Casino is by far Rallye’s largest asset, accounting for 93% of gross assets value. Hence, Rallye’s rating is largely driven by Casino, which we rate BB (please see our rating report on Casino dated 9 August 2017 for further details).
Liquidity improved materially over the past twelve months as Rallye successfully refinanced several bonds and credit lines, thus extending its debt maturity profile. Liquidity is adequate to meet debt matur-ities until 2020 without further refinancing or extending credit lines, provided that Casino’s share price remains above €37 due to share pledge requirements (it was €48 as of 14 November). Refinancing risk is also reduced by improving operations at the level of Casino both in France and in Brazil.
The rating is supported by Casino’s large scale and competitive positioning, being one of the largest food retailers in France with an 11.5% market share, in Brazil through its subsidiary GPA, and the clear leader in Co-lumbia through Éxito. We estimate that there is a fair visibility over Rallye’s cash flows, which essentially con-sist of dividends from Casino. We anticipate that Casino’s cash generation will remain adequate, allowing to preserve the current distribution to shareholders.
However, we see Rallye as overly leveraged, which, similar to Casino, is the utmost limiting factor for the rating. While Rallye had exhibited a loan-to-value (LTV) around 60% between 2010 and 2014, it jumped above 100% in the second half of 2015 when Casino’s share price tumbled, and currently stands at 99%. Rallye, has been burning cash over recent years, as dividends received from Casino did not cover interest expenses, holding costs and dividends paid (note that parent companies are themselves leveraged, albeit at a much lower level).