Ratings agency S&P downgraded French retailer Casino's debt deeper on Friday, cutting its rating to CC from CCC- with a negative outlook on what it called 'virtual certainty of default'.
The downgrade comes after Casino announced a debt restructuring deal with investors led by Czech billionaire Daniel Kretinsky to avert bankruptcy.
Under the agreement in principle, €1.2 billion of new money will be injected into Casino and its €6.4 billion debt will be restructured. A consortium led by Kretinsky will end up owning between 50.4% and 53% of Casino shares.
'Imminent Default'
"We expect Casino's default to be imminent and a virtual certainty," S&P said in a statement, adding that the default could arise from the non-payment of interest or debt, or from the execution of the announced transaction constituting "a distressed debt exchange and tantamount to default, as the obligations will not be fulfilled as originally promised."
In June, Casino sought a grace period to protect from potential default given unsecured bondholders had not agreed to waive their rights to ask for an immediate repayment of their claims, if the company missed a debt payment.
Casino faced around €12 million of bond interest payment on July 15.
"We understand that the majority of creditors did not respond or did not agree to the waiver on interest and principal payments," S&P said, adding that they do not know if Casino paid the coupon due mid-July and that it has an additional 30 days to pay before triggering an event of default.
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'No Effect On Restructuring'
The likely default, however, is not expected to affect the restructuring, a source with knowledge of the situation said, given Casino plans to implement it under court-backed accelerated safeguard.
The process would allow Casino to execute the deal without the consent of unsecured creditors if their claims are proved to be worthless, a second source added.
S&P also revised down the recovery rating on Casino's unsecured debt to zero from 25% due to its outstanding tax and social security liabilities, the disposal of its last stake in Assai for liquidity needs, and as Casino's revolving credit facilities are fully drawn.
S&P's negative outlook reflects the fact that it will lower the rating to 'D' if Casino executes the restructuring, or if it stops servicing its debt, the agency said.
France's sixth-largest retailer was forced to restructuring after years of debt-fuelled deals and market share losses.
The Kretinsky deal will end the 30-year reign of Casino CEO and top shareholder Jean-Charles Naouri, 74, who controlled Casino via listed holding company Rallye.
