Qivalio initiates its long-term corporate rating and instrument rating at BBB+ for Bellon S.A. and the company’s envisaged €200m NEU MTN instrument. Qivalio also reaffirms its SR1 short-term rating on the €500m NEU CP instrument of Bellon S.A.
Bellon is a family-owned holding company the only asset of which is a 42.8% share in Sodexo’s issued share capital, with 57.1% of its voting rights as of 31 December 2020. Bellon is 72.6%-owned by Pierre Bellon (Sodexo’s founder) and his children; other members of the family hold 7.8% and the Sodexo-owned holding company Sofinsod owns the remaining 19.6%. Considering that Bellon owns only one asset, we supplement our holding company ratings approach by using proportionate consolidation for computing several of Sodexo’s key credit metrics.
On the one hand, our rating is buoyed by the large size of the underlying company Sodexo, which generates significant revenues (around €20bn on a consolidated basis per annum over the last few years) and holds leading positions in its markets around the world. We also value the conservative financial policy of the Bellon family, which distributes less than 10% of the dividends received from Sodexo, resulting in a very low LTV ratio of 6.8% as of August 26, 2021.
On the other hand, the rating is constrained by the fact that the holding is not diversified in terms of value and industry and therefore our rating is fully impacted by the increase of the leverage ratios of Sodexo due to the Covid-19 pandemic impact on profitability (i.e., debt-to-EBITDA and FFO-to-debt), with these ratios calculated in proportion to the capital held.
Founded in 1966, Sodexo is a France-based global provider of food services and facility management services to various sectors (e.g., Education, Corporate Services, Healthcare, Sports & Leisure). The group is one of the leading global companies in its areas of activity and is relatively well-diversified in terms of geographic mix, with an operating presence across 64 countries in 2020. The group’s performance has, however, been strongly impacted by the Covid-19 pandemic. Indeed, Sodexo sales for the twelve months to end-February 2021 were, at €16.3bn, down by 28% (versus €22.6bn over the previous twelve-month period). The impact of the pandemic has been heterogeneous over the different business units of the group. Sodexo’s most affected divisions have been Education, Business & Administration, and Benefits & Rewards Services, with sales down 41%, 31% and 24% yoy respectively for the LTM ending February 2021. As a result, Bellon’s proportionate adjusted net leverage ratio increased from 2.9x at end-December 2019 to 4.2x at end-December 2020.
Early in the pandemic, Sodexo’s share price fell by more than 50% to reach a low point of €48.45 in March 2020, but it has since recovered well. Although the price has not yet returned to its pre-crisis level, it is currently around €69 (on August 26, 2021). As a result, Bellon’s loan-to value at the current share price is very low at 6.1%. In addition, the lowering of the LTV is linked to the dividend received in February 2020 (€181m), which was used by Bellon to acquire 800k additional Sodexo shares for €67m in March 2020 and to reduce its net reported debt from €383m to €300m. The main contributor to the debt reduction was the early repayment of the €81.2m USPPs, which were issued with a significant coupon. Furthermore, Bellon strongly adheres to its conservative financial policy. Again, historically Bellon has not distributed more than 10% of dividends received from Sodexo to shareholders (6% in 2020). Also, there is a strong willingness to maintain both the dividend paid and the LTV ratio at a low level.
The progress of the vaccination campaigns in Europe and the rest of the world should gradually contribute to a return to a pre-Covid lifestyle, which will probably promote an upturn in activity for Sodexo and strengthen its credit metrics, which will ultimately benefit Bellon S.A. Even if some end-markets will not quickly come back to a normalized level, we believe that Sodexo’s operating earnings will gradually recover thanks to the progressive easing of restrictions and the company’s continued adaptation of its operations. Along with cash-preservation measures, we estimate that operating recovery will drive Sodexo’s credit metrics back to levels seen prior to Covid-19, provided that the health situation improves in a sustainable manner.
In the event Sodexo decides to suspend the distribution of dividends to preserve its cash in 2021 and even 2022 (which is not the most likely hypothesis), Qivalio estimates that the situation for Bellon would remain entirely manageable given its strong credit metrics and adequate liquidity profile.
On July 27, 2021, Sodexo announced the replacement at the end of September 2021 of its current CEO, Denis Machuel, who has been in this position for the last 3 years. Without giving a precise reason, this replacement follows the desire of the Bellon family to establish a new leadership and accelerate the transformation of the group. Sophie Bellon will act as interim general manager as of September 30, 2021, if necessary. We do not see a material risk for Sodexo arising from this replacement at this stage.
As of end-December 2020, Bellon’s gross debt stood at €320m, mainly made up of i) NEU CP instruments for €170m, and ii) equity-linked swap (ELS) debt maturing in April 2023 from CACIB for €200m, of which only €150m was drawn as of December 2020. With a cash position of €20m, net reported debt stood at €300m at the end of 2020. As a result, the loan-to-value ratio (net financial debt/asset value) is assessed at 6.8% as of August 26, 2021.
Please note there are some covenants attached to this ELS, including the LTV ratio to be below 40% (from a legal perspective in the debt covenants, to comply with this condition Bellon has to maintain a ratio above 2.5x of the shares’ market value to loan value). However, we expect compliance with them with a large headroom based on our forecast.
In 2020, Bellon completed the extension of its undrawn €150m revolving credit facility by two years (to 2022), which is intended to be used as a liquidity line alongside the NEU-CP program.
The envisaged NEU MTN program is intended to: i) better diversify Bellon’s lines of credit by reducing the amount outstanding in the NEU CP program and the ELS, ii) reduce financial costs, and iii) increase flexibility with debt without financial covenants.
Adequate liquidity profile
Bellon’s liquidity score is 1 year. Indeed, the liquidity outlook is constrained by the expected drop in dividends received from Sodexo and by significant short-term debt (NEU CP). However, these negatives are mitigated by (i) the fact that the RCF matures in July 2022 and if a dividend payment is resumed it may be paid no later than in 1Q22, which would bring some support to liquidity in 2022; (ii) €50m can still be drawn under the ELS, which represents more than two years of Bellon’s operating costs; and (iii) the fact that Bellon owns liquid and valuable assets, i.e, Sodexo shares, the sale of a small portion of which could largely suffice to finance an eventual cash need by Bellon without it losing control over Sodexo. Thus, we consider that the liquidity profile of Bellon is adequate.
The amount of NEU MTN that Bellon will issue is currently uncertain. Therefore, we do not take the program into account in our calculation of the liquidity score. However, we understand that Bellon expects a maturity of two-to-three years and around €100m drawn as a medium-term objective. These debt tenures would improve Bellon's liquidity score by increasing the average maturity of its debt. Indeed, it is envisaged that the NEU MTN will enable Bellon to reduce the amounts of NEU CP, which has a maturity of less than 1 year, and of ELS, which matures in April 2023.
We assess the credit outlook to be Stable, which reflects our view that Bellon’s loan-to-value ratio will remain broadly unchanged over the next few months. This is due to the expected negative FCF for Bellon in 2021, which would increase the level of net debt. However, this could be balanced by the normalization of the Sodexo share price following the recovery expected with the easing of the Covid-19 pandemic. In accordance with our methodology for this rating, the Stable outlook also reflects uncertainty over the timing and extent of the recovery of Sodexo’s operating cash-flow and its ability to lower its leverage ratio.
- Long-term corporate rating: BBB+
- NEU MTN rating: BBB+
Bellon is positioned in the middle range of the BBB+ category. A long-term rating upgrade of Bellon to A- would require a significant reduction in the Qivalio’s net adjusted leverage ratio, which would most likely be driven by a major improvement at the Sodexo level. We would also view positively a significant diversification of Bellon’s investment portfolio, an option which is currently excluded in the short term, based on our talks with the company.
A downgrade to BBB could be triggered if Sodexo’s credit profile deteriorates significantly, which would have an important impact on Bellon’s proportionate credit metrics.
- Short-term corporate rating: SR1
Bellon is positioned in the middle of the range for our SR1 rating. An upgrade to SR0 would mainly require a significant diversification of Bellon’s investment portfolio, an option which is currently excluded in the short term, based on our talks with the company.
A downgrade to SR2 is unlikely. One could be triggered if Sodexo’s credit profile deteriorates significantly, which would have an important impact on the LTV of Bellon S.A.
SPRR/2021/675 & 676/30/08/2021
Initiation report: Yes (only for the LT corporate & instrument rating).
Rating initiation: Long-term corporate and instrument rating (NEU MTN) to BBB+ on August 30, 2021. Short-term corporate and instrument rating (NEU CP) to SR1 on June 5, 2018.
Last rating action: We reaffirmed the public short-term rating of the NEU CP of Bellon at SR1 on May 25, 2021.
Solicited, short-term public rating on NEU CP instrument, long-term public corporate rating and NEU MTN instrument public rating.
With rated entity or related third-party participation: Yes, this report was published after being reviewed by the issuer.
Ancillary services provided to the rated entity: No ancillary services are provided to Bellon. However, Qivalio provides ancillary services to subsidiaries within the Sodexo group, which is mainly owned by Bellon. Qivalio also provides solicited public ratings to Sodexo. (Updated on September 29, 2021).
With access to internal documents: Yes
With access to management: Yes
Name of the rating committee chair: Thomas Dilasser, Senior Credit Analyst.
Material sources used to support the rating decision:
- Financial statements 2020, 2019, 2018, 2017, 2016
- Discussions with Bellon management
Limitation of the Rating action:
Qivalio believes the quality and quantity of information available on the rated entity is sufficient to provide a rating.
Qivalio has no obligation to audit or verify the accuracy of data provided.
Principal methodology used in this research available at:
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