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  "documentTitle": "Groupe Casino Guichard-Perrachon SA (CO FP)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2015-12-16 00:00:00",
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  "notes": "The text outlines a 'short' thesis based on the discrepancy between reported and adjusted leverage ratios, and the consolidation of debt from partially-owned subsidiaries.",
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      "text": "We estimate Casino's LTM leverage ratio is 8.9x. Ideally, a company consolidating results of proportionally-owned companies has the debt spread out among the consolidated companies. That is not the case with Casino - there is a massive gap between what is owned, and what is owed.",
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      "text": "LTM adjusted leverage: 8.9x",
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      "kind": "paragraph",
      "text": "A bulge bracket bank raised the possibility that Rallye becomes a zero - in a recent note, the bank estimated that if Casino shares hit €46, then Rallye has no equity value left. We see the Casino deleveraging \"plan\" that was announced December 15th as an empty, and desperate ploy to buy time for Rallye by trying to prop up Casino's price. (Casino had previously closed at €45.995.)",
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      "text": "We are short shares of France-based retail conglomerate Casino (CO FP) because their value could be as little as €6.91 per share, which is 86.2% lower than its last close. We are short Casino's credit, which S&P rates BBB-, because we estimate Casino's LTM adjusted leverage is 8.9x, and the parent has €3.3 billion in maturities coming due through 2017. We are short shares of Casino's parent and largest shareholder Rallye SA (RAL FP) because we value them at zero. We are short the credit of Rallye because we consider a default probable in the next two years.",
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      "kind": "paragraph",
      "text": "Our base case value for Casino shares is €6.91. This is based on estimates of LTM numbers. Casino's financial statements greatly mislead investors about the value of Casino's equity. Casino management then obfuscates and refuses to release key clarifying information, thereby continuing the misperception of value that is clear to insiders. On the surface, Casino appears to be prudently managed with moderate leverage (net debt to EBITDA) of only 3.0x. Unfortunately, Casino shareholders have far less cash and cash flow to meet those obligations than it appears.",
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      "kind": "paragraph",
      "text": "Casino's leverage, compounded by the massive debt at its parent, RAL, is causing management to hollow out the productive value of Casino. Even though Casino realized €1.7 billion by cramming an abusive transaction down the throats of one of the companies it consolidates, Almacenes Exito SA, parent-level and consolidated cash have both dropped precipitously while debt has climbed. Casino's consolidated subsidiary GPA is one of the largest tax dodgers in Brazil, according to the government's official list. Casino guarantees this liability for up to € 3 billion. (Our debt and leverage calculations do not include this contingent liability.)",
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      "kind": "paragraph",
      "text": "Casino has only fractional ownership in a number of businesses that it fully consolidates. That is, even though Casino only owns portions of these businesses - in one case only 14.2% - Casino reports their results as though they were its own. Casino then borrows against these numbers. The concept is similar to a trustee of someone else's trust taking the trust's account statements to the bank and getting a loan based on the assets. (The trustee would obviously be acting illegally; Casino's accounting is legal.) We estimate Casino's LTM leverage ratio is 8.9x. Ideally, a company consolidating results of proportionally-owned companies has the debt spread out among the consolidated companies. That is not the case with Casino - there is a massive gap between what is owned, and what is owed. Casino owns only 49% of the estimated LTM EBITDA, but owes 93% of adjusted net debt.",
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      "kind": "source-note",
      "text": "2 €1.9 billion of commercial paper, estimated €500 million of TRSes, €379 million of 2016 bonds, €538 million of 2017 bonds.\n3 We explain the basis for the adjustments and estimates in detail in the report.",
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