CONSUMER STAPLES: Elo/Auchan (ELOFR; NR/BB Neg) S&P recovery assumptions

(owned by the Mulliez family)

S&P had recovery on the senior unsecured bonds at meaningful in the event of default (rounded 65%). S&P's default scenario assumes pressure on RE valuations and though it notes no cross-default or cross-guarantee clauses between Elo and the RE arm, NIH, it does assume the RE asset base is available to Elo creditors (for dividends and reimbursement of intercompany loans) and liquid assets will be sold down to provide liquidity before a default.

It actually has recovery rate higher than 65% but it penalising it down due to unsecured nature of the bonds. This is as it assumes co will bring in secured debt (either new or refinancing at cheaper) - a tad confusing to us given the negative pledge that should protect bond investors from that. Currently only a small €0.3b is secured debt (€5.7b unsecured), with undrawn RCF S&P has at pari-passu to unsecured.

Bonds have fallen the same amount in the last 3 days (on no news - reported pressure from flows) as it did post the rough 1H earnings. Dec 28s trade at the lowest cash px; €84.6/9.5%/B+750