CONSUMER STAPLES: Elo/Auchan; S&P on Retail/RE separation plans
(ELOFR Unsec: NR/BB- Stable now)
Bonds struggling for direction this morning after S&P gave potential details on the split.
For reference the RE arm, called NIH, would have been rated BBB by S&P on standalone basis with its €7b portfolio on a 35% LTV and 4.3% vacancy. The debt load under it is currently in the form of €0.5b external/NIH issued debt and €2.5b in intercompany loans (from holdco/Elo). S&P simply sees more external funding straight out of NIH and reduction in holdco lending. Holdco itself has ~€5.4b of gross ex. leases debt, €4.4b of which is in the senior unsecured bonds. Nearly all debt currently unsecured and rank pari passu (€0.3b secured).
This is likely Auchan tapping cheaper financing. There is the prospect of somewhat sizeable reduction in the holdco debt, but the bonds are not expensive in itself (all ex. the April-28s issued under IG ratings). Adding to that, and as S&P notes, co is expected to continue burning cash. Auchan has said it will use RE disposals to fund that though.
On the retail fundamentals S&P does note the 2H EBITDA stabilisation "after several semesters of continuous decline" but even under a continued EBITDA recovery sees €500m/yr cash burn in the next two years on €1b/yr in capex, €450m/yr in lease payments and €275m/yr in interest. Co has stated it will use €1b in RE disposals (between 2025-26) to offset that.
Full S&P note can be read here: https://tinyurl.com/39few46v