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06 June 2018 by lberuti

Since the beginning of the week, strong monthly growth in U.K. consumer spending have helped European retail credit outperform the broader market which have been dragged wider on renewed Italian worries. It did not apply to RALFP ( Rallye SA ) nor COFP ( Casino Guichard Perrachon SA ) though. The risk premia of these two entities went through the roof over the last couple of sessions, after a broker published a note expressing a cautious view on the French retailer’s performance in France and abroad, as well as its complex group structure. Their analysis pointed to significantly negative free cash flow last year, which could impair the ability of COFP to maintain its dividend. As a consequence, RALFP may struggle to refinance its two bonds which come due in October this year, and March next year. RALFP’s 5-year risk premium widened by 8pts upfront in two days. It now stands at 27% + 500bps running (to insure €1 of RALFP’s debt over 5 years, you need to pay 27cts upfront and another 1.25cts every quarter). The market estimates at 70% the probability RALFP will default over the next 5 years, and at 19% the probability it will not make it to next summer…