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Melting Tighter

04 March 2019 by jbchevrel

Picard BondCo SA (PICSUR) manufactures and sells frozen food products. It saw its French LFLs decrease -4% vs previous year, in a quarter that was key for this issuer, given that it included both Christmas and New Year. And weaker French consumer confidence (largely driven by the ‘yellow vest’ protests) did not help, in this respect. Margin having been roughly stable, EBITDA fell -5% (€85m) vs previous year. Despite that not great news, the 5-year CDS is tighter by c25bp on the day, after showing -50bp intra session, because PICSUR leverage came down in the quarter. Leverage decline resulted from a surprisingly stronger FCF, spurred by strong NWC (€100m). The positive surprise came from the current liability side of the equation (i.e. lower payables). Thus, PICSUR liquidity has optically improved from €40m to €200m. I write ‘optically’ because that is probably not here to stay, especially if this single-B-rated retailer’s sales keep declining... The investor call scheduled on March 8 at 2PM (London time) might give us more colour, but the fact that Easter occurs quite late this year (April 21) means that will not cushion PICSUR leverage, next quarter. Additionally, it is worth noting that demand for single-name protection has been very subdued lately, in € HY space, partly due to the March roll coming soon.