Elior bonds soften on Moody’s downgrade

Elior Group SA bonds are down roughly half a point today after Moody’s on Jan. 13 downgraded the French contract catering firm’s corporate family rating to B1 from Ba3, citing a slower-than-expected return to profitability.

The Paris-listed global catering and foodservice company has one outstanding bond following a €550 million, 3.75% offering of five-year notes which the group priced at par last July. These notes are today quoted in a 101.34/102.65 market according to Tradeweb quotes, equivalent to a 3.45%-bid yield, down from 102.40 for a 3.023% yield at yesterday’s close, according to S&P Global Market Intelligence data.

Moody's analyst Eric Kang said the downgrade reflected the agency's expectation that Elior "will recover at a slower pace than we initially expected in June 2021 due to the rapid spread of the Omicron variant" and that there remains "limited visibility on a recovery of profitability towards pre-pandemic levels in fiscal 2023."

The agency said it forecasts Moody’s-adjusted debt to EBITDA of around 6.5x and cash flow of around €85 million for the 2022 fiscal year, down from its previous forecast date in June last year of 5.3x and negative free cash flow of €10 million.

Pandemic-related disruptions including school closures and remote working have impacted Elior's recovery and changing consumer habits, particularly with respect to remote working, and add to longer-term uncertainty, Moody's said, noting that office-related customers contributed about 17.5% of the revenue prior to the pandemic.

Elior in November 2021 reported fourth-quarter revenue at 85% of pre-COVID-19 levels and an adjusted EBITA loss of €64 million, but outlined plans to return to pre-pandemic revenue by 2024.

Elior is a contract caterer that supplies markets in France, the U.S., the U.K., Spain, Italy, India and elsewhere and is currently rated BB-, with a negative outlook, by S&P Global Ratings. The company's 3.75% bonds due 2026 are callable in July 2023 at 101.875.