Operator News

Spain – Standard and Poor’s lowers credit rating for Codere

By Phil - 21 October 2019

Global rating agency Standard and Poor’s (S&P) has lowered the credit rating of Codere from B to B- with a negative outlook, after the company reported “inconsistencies” of up to €18m in three of its Latin American subsidiaries. Despite the rating change shares increased from €3.18 compared to €3.14 when the session closed.

After finding the inconsistencies, the board of directors commissioned a forensic report from an external advisor to identify the cause of the failure. For S&P, this process “can delay its refinancing prospects” of up to €775, in bonds that expire in November 2021.

S&P also appreciates that this announcement implies improvements in the governance of the company. The company said that it will stick to its refinancing plans.

Codere planned to carry out and close this negotiation within a maximum period of six months, setting the deadline for the month of March next year, for which it hired Bank of America. The first intention was to undertake it after the summer, given the good performance that their bonds showed then, but the delicate economic situation in Argentina delayed the process.

In addition Codere, reported “inconsistencies” in the latest results for its Latin American subsidiaries earlier this month leading shares to fall. Codere communicated to the National Securities Market Commission (CNMV) that it had detected inconsistencies in the accounts of its Latin American subsidiaries in 2019.

“The preliminary analysis of these inconsistencies estimates the maximum impact in the area of 13/18 million Euros on the results published in June 2019 and would reduce our expectation of Ebitda (gross operating profit) adjusted for the entire year by approximately 20 million Euros,” said the company at the time.

Codere stressed that preliminary investigations have not yet detected an additional impact on the liquidity situation of the company, nor “inappropriate cash outflows”, so in their opinion, it is “an isolated incident that only affects the results of these subsidiaries this year. ” For this reason, the board of directors have commissioned an external advisor to prepare an analysis to identify “any relevant aspect” related to inconsistencies and to ensure transparency in compliance with the best accounting practices.

In September as a result of the uncertainty generated in the markets following the results of the primary elections in Argentina, rating agencies conducted a review of Codere due to the group’s exposure to the market. S&P initially maintained the B rating for Codere, although it said it will be monitored for the next six months when the group approaches the period of two years prior to the expiration of its bonds.

Codere in a statement at the time however said: “The arguments put forward by the agency (S&P) respond to strictly technical criteria on the term of refinancing, balancing the uncertainty generated in Argentina with the favourable evolution of the company and its ability to face adverse scenarios, due to macroeconomic or regulatory circumstances, generating growth.”