S&P downgrades Codere to 'B-'

15 October 2019

Credit rating agency S&P Global has downgraded Codere from a ‘B’ to a ‘B-,’ a week after the company announced financial inconsistencies may reduce its full-year earnings by up to €20m (£17.9m/$22.0m).

The S&P rating system contains 10 points from AAA to D, of which six can be modified with a ‘+’ or ‘-’, denoting a high or low standing respectively within the category. The ‘B-’ rating therefore is the 16th-highest of 22 possible ratings a company may receive.

The decision to downgrade the company comes a week after Codere announced that it would investigate financial inconsistencies among unnamed Latin American subsidiaries. The company stated that the subsidiaries may have overstated their reported results by between €13m and €18m, which would ultimately have an effect on its full-year earnings.

Codere said the inconsistencies were an “isolated incident” that would not affect any other year’s financial results.

In addition to the inconsistencies, devaluation of the Argentine Peso may have played a role in the downgrade. Argentina had been Codere’s largest market in 2018, but its revenue has fallen in the country owing to the decline in the value of the currency due to political instability.

Codere initially reported a net loss of €8.5m for the first half of 2019, down 78% from last year. At the time the company said it was on track to meet its target EBITDA of €280m to €290m, but following the inconsistencies, this figure was revised down to €260m to €270m.

“An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation,” S&P’s definition of the ‘B’ rating states. “Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.”

The rating agency does not further elaborate on the conditions for a company’s standing to be low enough within the B grade to warrant a ‘B-’.