Carrefour Bonds Plunge on Concern Takeover Would Pile On Debt

(Bloomberg) -- Bonds issued by French supermarket group Carrefour SA took a pounding on Wednesday as a takeover approach from Canada’s Alimentation Couche-Tard Inc. sparked concerns that a deal would swell the combined company’s debt burden.

A 1 billion euro ($1.2 billion) note maturing in 2027 was indicated 1.2 cents lower at 115.3 cents, marking the biggest one-day price drop since issuance last March, based on data compiled by Bloomberg. It’s the worst-performing bond in the euro high-grade market Wednesday, followed by other bonds issued by the French grocer.

Any takeover of Carrefour would likely require Couche-Tard to take on further debt to finance the transaction, potentially hurting the credit profile of the food-retailing behemoth that would emerge from it, analysts said.

“If Couche-Tard needs to raise cash to finance the transaction and then also needs to invest in Carrefour, it will take a while before the benefits of the transaction become visible,” said Alyssa Gammoudy, a credit analyst at ING Group NV.

A spokesperson for Carrefour didn’t immediately respond to a request for comment.

Credit rating firms have already taken issue with Carrefour over its debt load. Moody’s Investors Service kept the company’s Baa1 rating at a negative outlook last September, citing high gross leverage and low cash generation even as a transformation plan labeled ‘Carrefour 2022’ starts to yield results.

Asset Sales

As of June last year, Carrefour had net financial debt of 5.2 billion euros, a decline on the previous year as it sold off assets. The grocer has outstanding bonds in euros and dollars.

While the prospect of a credit-negative deal weighs on bond prices, not all bondholders are convinced the approach from the owner of the Circle K chain will result in a deal.

“We think the Couche-Tard approach for Carrefour is unlikely to go through,” said Tim Winstone, a portfolio manager at Janus Henderson Investors, who holds some of the French firm’s notes.