Research Update: Spain-Based Cirsa Downgraded To 'B-' On Weaker Financial Performance Caused By COVID-19 Disruption; Outlook Negative

Cirsa has experienced widespread store closured in all of its countries of operation due to the rapid spread of COVID-19 in the last couple of weeks. While the magnitude and duration of the pandemic is uncertain, our current base case assumes that the virus will peak around mid-2020. We therefore model store closures lasting to the beginning of July, followed by a slow ramp-up until the end of 2020, with full recovery only in 2021. Given Cirsa's high fixed costs, we estimate about a 30% revenue decline translating into about an 80% drop in EBITDA, leading to a steep increase in leverage and materially negative free operating cash flows (FOCF) in 2020. We are therefore lowering our issuer and issue

...- Cirsa has experienced widespread store closured in all of its countries of operation due to the rapid spread of COVID-19 in the last couple of weeks. - While the magnitude and duration of the pandemic is uncertain, our current base case assumes that the virus will peak around mid-2020. - We therefore model store closures lasting to the beginning of July, followed by a slow ramp-up until the end of 2020, with full recovery only in 2021. Given Cirsa's high fixed costs, we estimate about a 30% revenue decline translating into about an 80% drop in EBITDA, leading to a steep increase in leverage and materially negative free operating cash flows (FOCF) in 2020. - We are therefore lowering our issuer and issue ratings on Cirsa to 'B-' from 'B'. - The outlook is negative, reflecting the uncertainty regarding the duration of the pandemic, the magnitude of its effect on Cirsa's financial performance this year, and the timing and strength of any recovery and resulting effects on capital structure...

Research Update