Qivalio has reaffirmed its short-term rating of SR0 assigned for Fimalac’s NEU CP program of up to EUR700m. As before, this rating reflects a solid credit profile and still very comfortable liquidity on the back of an exceptional net cash position, despite significant investments made in 2019 and 2020 and the Covid-19 pandemic, which weighed on most of the group’s businesses in 2020 and continues to weigh on them in 2021. Fimalac is a long-term, diversified investment company which operates mainly in three sectors: digital (the Webedia group), hotels and casinos (the Lucien Barrière group), and the live show sector (the Entertainment division). The group also owns property assets as well as a large portfolio of financial assets. Fimalac has been owned 100% by Marc Ladreit de Lacharrière and his family since the simplified public offering in June 2017 and the mandatory delisting which followed in July 2017. Fimalac’s net assets were assessed at EUR4.4bn as of end-2020, including EUR1.7bn of net cash. Our analysis is based on an ‘investment holding’ methodology, focused on the ultimate parent company and financial subsidiaries, and considering operating companies as investments.
The Digital division has been the main asset excluding cash (c.60% of the net adjusted value of assets excluding cash) since the divestiture of the stake in Fitch Ratings, and remains a strategic pillar of the group. Since the 2019 acquisitions, which strengthened the Digital division (Elephant and Jellyfish), Fimalac has not acquired new assets related to its three divisions; instead the company has chosen to make financial investments such as the one in Rallye, retailer Casino’s parent holding company, or strategic minority investments such as the ones in Stéphane Courbit’s holding, Financière LOV (hotels, online gaming and audiovisual production), and in its subsidiary LDH, especially for the acquisition of Endemol Shine Groupe by Banijay.
Fimalac’s portfolio encompasses developing assets such as the Digital division, for which profitability and cash generation are still weak but for which the markets are promising, and assets which have a more stable operational profile such as the stake in the Lucien Barrière group. However, the Covid-19 crisis severely impacted in 2020 the Hotels and Entertainment divisions on the back of a shutdown of theatres, casinos, hotels and restaurants for several months. The Digital division reported mixed results: although the Publishing operations (internet websites) were materially impacted by the crisis (decrease in monetizing the Internet audience), some other digital operations within the group were more resilient in the context of the pandemic. In the first half of 2021, part of the Digital division has reported improved results, which is expected to partly offset the mixed performances of other divisions, which continue to be impacted by the Covid-19 situation.
Overall, Fimalac’s investment policy remains prudent, based on some opportunistic investments, and balanced between defensive assets (real estate and financial assets) and assets whose profile is by nature riskier and cyclical but for which there is good potential for growth, such as the Digital and Entertainment divisions. The company’s track record mainly results from the success of its investment in Fitch Ratings, the last part of which was divested in 2018 for EUR2.3bn. Fimalac’s solid financial profile is the main factor behind its high rating. Cash is still significantly higher than debt. Besides, Fimalac has a prudent financial policy characterized by a negative loan-to-value ratio since 2016, a position we expect to continue over our three-year forecast horizon, thanks to the significant cash resulting from the divestiture of the Fitch Ratings stake combined with the profitability that derives from the cash invested and from the group’s financial assets.
Geographic diversification is stable compared to last year. It is mainly supported by property investments and by some of the Digital division’s operations, particularly after the acquisition of Jellyfish and its international operations (especially in the US). A significant portion of Fimalac’s cash is still in US dollars in order to mitigate the monetary risk, despite these investments being less attractive than in 2018 and 2019 due to the decrease in Fed prime rates. However, another significant portion of the cash in US dollars was used for investing in 2019 and 2020.
The liquidity of Fimalac’s assets is unchanged compared with last year. Factoring in the strategic weight of the division, as well as investments made in 2019 and 2020, a divestiture of the Digital division continues to look improbable at present, which makes it a rather illiquid asset in our opinion. We believe a divestiture of Groupe Barrière could happen in the event of a joint exit or if the Desseigne-Barrière family was willing to purchase Fimalac’s shares. Property assets, situated in prime locations and easily realisable, thus remain, in our view, the most liquid assets of the group with the exception of cash and other listed financial assets.
The holdings’ total debt amounted to EUR0.9bn as of end-2020. It mainly comprised NEU CP instruments for EUR235m, out of a EUR700m program. In addition, Fimalac subscribed in 2018 to a EUR300m bank facility with maturity in 2025, of which EUR100m was redeemed in 2020, and raised another EUR300m of bank debt at the end of 2019, with maturity in 2024 and which was fully drawn at end-2020. Fimalac still had a EUR40m private placement with maturity in 2021, as well as EUR146m of other debt, a significant portion of which is short term.
The holdings’ cash, including financial assets, amounted to EUR2.7bn at end-2020, mainly comprising money market funds, most of which resulted from cash received following the divestiture of the 20% stake in Fitch Ratings, as well as listed shares and bonds. Fimalac also has a loan with Groupe Marc de Lacharrière (GML).
The net cash position - restated for group pension liabilities, additional prices on acquisitions and share purchase commitments, which we assumed would be supported by Fimalac on behalf of its subsidiaries - amounted to EUR1.7bn as of end-2020.
Fimalac’s liquidity is still very good thanks to a significant cash position, despite this having been reduced over the past few years on the back of investments made. Cash, combined with the most liquid portion of financial assets, still amply cover the short-term maturities (by around 5x), whereas cash combined with the GML loan and some less liquid financial assets also exceed the total amount of debt (by around 3x).
With respect to some of its bank loans, Fimalac has to comply with financial covenants, the calculations of which are based on consolidated financial statements. They were complied with at end-2020 with significant headroom.
Credit outlook : Stable
Because of the Covid-19 pandemic and its various consequences, some of Fimalac’s assets will be affected again in 2021. Net cash will evolve depending on acquisitions and disposals made, but it will remain very comfortable nonetheless, and the LTV ratio will remain significantly negative over the next 12 months. We have also forecast a stable interest coverage ratio for 2021 compared to 2020.
Fimalac is rated SR0 thanks to exceptional liquidity, which is characterized by an exceptional coverage of short-term debt as well as by a significantly negative LTV ratio, a position which we expect to remain in place over the next three years according to our forecasts. We may, however, downgrade our rating should Fimalac use a significant part of its cash for investments, resulting in a deterioration of the liquidity profile and consequently of the debt coverage ratio as well.
This document is a translation of the French version published on June 25, 2021, which remains the definitive version. It is not an update of the rating published on June 25, 2021 and it does not contain any additional figures/rationale not included in the French version.
Review report on short-term rating on existing NEU CP program
Latest rating action: Reaffirmed at SR0 on 25 June 2020
Rating initiation: SR1 on 20 July 2017
Rating nature: Solicited short-term public rating (the report was published after having been reviewed by the company)
Name of the rating committee chair: Johann Scavone, Senior Rating Analyst
With rated entity or related third-party participation: Yes, the rating report was issued after having been reviewed by the issuer
With access to internal documents: Yes
With access to management: Yes
Material sources used to support the rating decision:
- Consolidated financial statements of Fimalac 2016, 2017, 2018, 2019, 2020
- Statutory financial reports of Fimalac and Fimalac Développement 2016, 2017, 2018, 2019, 2020
- Valuation report by Associés en Finance 2017, 2018, 2019, 2020
- Interviews with management
Limitation of the rating action:
- Qivalio believes that the quality and quantity of information available on the rated entity is sufficient to provide a rating
- Qivalio has no obligation to audit the data provided
Principal methodologies used in this research:
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