Codere maintains its forecasts despite Moody’s low rating

C

as a result of the uncertainty generated in the markets after the results of the primary elections in Argentina, the rating agencies conducted a review of their ratings of Codere for the group's exposure to that market.

The credit rating agency S&P maintains the grade B for Codere, although it will be subject to surveillance over the next six months (Credit-Watch Negative), as the group approaches the two-year period prior to the expiration of their bonds.

"The arguments put forward by the agency respond to strictly technical criteria on the term of refinancing, balancing the uncertainty generated in Argentina with the favorable evolution of the company and its ability to face adverse scenarios, due to macroeconomic or regulatory circumstances, generating growth", Codere explained in a statement.

For its part, the agency Moody’s downgraded Codere’s rating, from B2 to B3, keeping the perspective stable. The potential impact of the situation that Argentina is experiencing was based on the profitability and cash generation capacity of the group. The company said it does not share this decision because it understands that the new report issued does not properly reflect the current situation or the company's perspectives.

In a statement distributed by Codere, several points are emphasized:

• This rating reduction does not take into account the company's recent communication, which reports the effects of Argentina's situation on its second quarter results and reaffirms its expectation of complying with the adjusted ebitda guide for 2019, which entails both a significant improvement in ebitda compared to the previous year, as well as the generation of flow of positive free box for this year.
• In these first six months of the year, the company showed lower levels of non-recurring expenses and investments in maintenance and growth (capex), thereby improving the expectation of cash flow generation for the year. Consequently, and in contrast to the expectations of the rating agency, the company expects to generate a positive cash flow during 2019.
• The results at the end of June 2019 (and advanced on August 26), reflect that, both the company's ebitda and the adjusted ebitda, the geographical diversification of both and the cash generation, reach, by the middle of this year, their highest level since 2012, while net leverage stands at 2.7x lows.
• Likewise, Codere continues to implement its Transformation Plan within the company, digitizing its front and back offices, and activating levers capable of generating significant growth in adjusted ebitda in coming years. In particular, this plan has allowed reducing exposure in Argentina, which has gone from assuming 131 million euros of adjusted ebitda (almost 50% of the consolidated), to around 65 million in 2019 (less than 25%), while that of the rest of the group has passed in this period of contributing 121 million euros to approximately 220, according to the guidance provided to the market for 2019.

In the context of the publication of the results of the first half of 2019, on Friday, September 13, the company will comment in depth on its data and expectations of cash flow generation "based on the actual data of the second quarter of the year".