Business
Fitch Rates Elior Group's Senior Unsecured Notes at 'B+'
Fitch Rates Elior Group's Senior Unsecured Notes at
About this update from Elior Group Sa
Fitch Ratings has assigned Elior Group S.A.'s notes a senior unsecured rating of 'B+', with a Recovery Rating of 'RR4'. The debt rating is in line with Elior's Issuer Default Rating (IDR) of 'B+', which has a Positive Outlook. Elior planned to use the note proceeds and cash to redeem the EUR550 million notes due 2026. Lenders representing only EUR391 million accepted the tender offer, leaving EUR159 million outstanding. Fitch now expects leverage to reach 7.3x by end-2025, above the previous 6.5x forecast. However, repaying the outstanding notes in 2026 will return Elior to its planned deleveraging trajectory. Elior's Positive Outlook reflects Fitch's expectation of an improvement in credit metrics by financial year ending September 2026 (FY26) as strengthening profitability increases free cash flow (FCF) and reduces Fitch-adjusted EBITDA leverage towards 5.5x. This may support an upgrade in the next 12-18 months, assuming Elior maintains a solid business profile and a stable relationship with its parent, Derichebourg S.A. (BB+/Stable). Key Rating Drivers Refinancing Addresses Upcoming Maturities: Elior's new bonds have comfortably extended its maturity profile, with no major debt repayment before 2029. A new EUR430 million revolving credit facility (RCF) also enhances the company's liquidity and extends its maturity profile. The current main maturities are the EUR159 million outstanding notes due in 2026. Until they are repaid, use of the RCF is limited and Elior can only draw EUR271 million . Robust Business Model: Elior's robust business model, reflecting its strong position in the French catering market, large contract base and diverse customer pool with low churn rates support its 'b' Standalone Credit Profile (SCP). The addition of Derichebourg Multi Services (DMS) has increased business diversification from its sole catering business, with the multi-services segment representing 27% of revenue in FY24. It also provides scope for growth through cross-selling. Stronger Parent : Fitch applies a bottom-up assessment in accordance with its Parent and Subsidiary Linkage Criteria, reflecting the stronger parent versus weaker subsidiary. Fitch assesses Derichebourg's legal and operational incentives to support Elior as 'Low' and the strategic incentive as 'Medium'. This reflects the material asset value Elior represents for Derichebourg , leading to an uplift from Elior's 'b' SCP by one notch to its 'B+' IDR. Recovering Profitability: The Fitch-adjusted EBITDA margin reached 3.5% in FY24 and we forecast it to rise above 4% after FY25. This is a large increase from FY20-FY23 and will be key in driving Elior's FCF and leverage to levels commensurate with a 'b+' SCP, as underlined in its Positive Outlook. This follows the exit of non-profitable contracts over the last 18 months, and the full impact from integrating the more profitable DMS. Elior has also been working on optimising its catering cost structure to adapt to changing customer needs. Rapid Deleveraging Expected: Fitch expects rapid deleveraging due to recovery, profitability improvements, and the proposed transaction. The unredeemed EUR159 million notes raise Fitch-defined leverage to 7.3x, but we expect repayment of the notes in 2026 to bring leverage in line with our previous expectations of 5.6x in FY26, from a high 7.5x at FYE24. We consider execution risk manageable, as most of the profitability improvement measures relate to contract renegotiation, while its group cost structure has been updated. We expect continuing good retention rates with main customers. Deleveraging by 0.5x a year until FY28 may support an upgrade in the next 12-18 months. Stabilising FCF: We expect Elior to return to moderate FCF generation from FY26, which, starting from around EUR35 million , or 0.5% of revenues, should then strengthen from FY27. This will be driven by improving profitability and contained capex under the company's asset-light business model. The improved FCF profile comes after years of negative FCF during the pandemic and high inflation. Stabilising FCF will be a key factor for an upgrade. Conversely, persistently neutral to negative FCF could weigh on the ratings. Limited Geographical Diversification: Elior's revenues are concentrated in Europe , at 78% of FY24 net sales. It has historically focussed on the French market, with around half of its sales generated in the country. This concentration exposes Elior to downturns affecting the region. This is mitigated by its diverse end-markets. Strong Market Share, Revenue Visibility: Elior benefits from a strong market share in its key French catering market, at 22%. We also view positively its exposure to different end-markets, such as private businesses, healthcare providers and education companies, which provides some revenue and earnings stability across economic cycles. Elior also has high retention rates (92.7% at FYE24, excluding voluntary contract exits) across its diversified customer base on multi-year contracts and with its top 10 customers, which accounted for 13% of FY24 total revenue. Financial Policy Focuses on Deleveraging: We factor into our rating analysis Elior's focus on deleveraging and on limiting dividend payments until net leverage (as calculated by company) falls below 3.0x, which corresponds to Fitch-defined leverage of below 5.0x. We expect Derichebourg S.A. to be supportive of this strategy, given the nature of its investments in Elior . Evidence of a more aggressive financial policy that undermines the deleveraging of the business will put the ratings under pressure. Peer Analysis Elior's closest peer by business profile is Sodexo SA (BBB+/Stable). The large rating difference is warranted by Elior's lower geographical diversification, much smaller scale and weaker credit metrics overall. Elior is mostly present in Europe (around 78% of its revenue), while Sodexo has a balanced presence across Europe (35% of FY24 revenue), North America (46%) and rest of the world (18%). We expect Elior's leverage to remain above 5.5x over FY25-FY26, and forecast Sodexo's at 2.5x. We also compare Elior with other business services providers such as Circet Europe SAS (B+/Stable) and Assemblin Caverion Group AB (B/Positive). Elior's 'b' SCP reflects a more balanced end-market and geographical mix, but also lower profitability and FCF and higher forecast leverage. However, the Positive Outlook on Elior reflects its deleveraging prospects. Elior's 'B+' IDR benefits from a one-notch uplift, due to the stronger parent, in accordance with Fitch's Parent-Subsidiary Linkage Criteria. Key Assumptions Fitch's Key Assumptions within our Rating Case for the Issuer: Revenue growth of mid-single digits to FY28 EBITDA margin to gradually rise to 4.3% by FY28 Capex at 2% of revenue over the forecast period Working-capital outflows of 0.1%-0.3% to FY28 No dividend payments over the forecast period M&A spend of about EUR10 million a year to FY28 Recovery Analysis In conducting its bespoke recovery analysis, Fitch estimates that Elior's asset-light business model, in the event of default, would generate more value from a going-concern (GC) restructuring than a liquidation of the business. We have assumed a 10% administrative claim in the recovery analysis. Our analysis assumes post-restructuring GC EBITDA of around EUR180 million . We have applied a 5x distressed multiple, reflecting Elior's scale, customer and geographical diversification. We assume Elior's securitisation programme at around EUR400 million , ranking senior to its unsecured notes and RCF, would need to be replaced by alternative funding in the event of financial distress. The new EUR500 million unsecured notes, the EUR159 million notes that remain outstanding, and the EUR430 million RCF rank pari passu among themselves, and we assume a fully drawn RCF in our recovery analysis. However, RCF usage is limited to EUR271 million until the reimbursement of the outstanding EUR159 million notes. Once the outstanding notes are repaid, the full EUR430 million RCF will be available. The outstanding EUR159 million notes and their expected repayment therefore do not change the Recovery Rating. The waterfall analysis based on current metrics and assumptions generates a ranked recovery corresponding to the 'RR4' band, which indicates a 'B+' instrument rating, in line with Elior's IDR. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Loss of contracts leading to a deterioration of Elior's competitive position in its main markets EBITDA margins remaining below 3.5% Gross debt/EBITDA above 6.5x on a sustained basis EBITDA interest cover below 2.0x Cash flow from operations (CFO) less capex/debt below 1% Neutral-to-negative FCF A multi-notch downgrade of Derichebourg , or a weakening of strategic ties between Elior and Derichebourg would lead Fitch to assess Elior on a standalone basis. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Continued recovery in revenue growth and demonstration of cross-selling capabilities across segments Improving profitability leading to EBITDA margins above 4% on a sustained basis Gross debt/EBITDA below 5.5x on a sustained basis EBITDA interest cover above 3.0x CFO less capex/debt above 3% FCF margins consistently above 1% Liquidity and Debt Structure Elior reported a cash position of EUR180 million as of March 2025 , and EUR126 million available under its new EUR430 million RCF. In addition, it has access to a securitisation programme, which provides additional liquidity through receivables financing. Elior currently has EUR159 million outstanding due in July 2026 . This is covered by a restriction on the RCF availability for the same amount, which will be released after repayment of the notes. The company repaid in full its EUR100million term loan in December 2024 and successfully extended its maturities to 2029 for the new RCF and 2030 for the new notes. Issuer Profile Elior is an international contract catering and diversified services provider. Its services include cleaning, facility management, electrical and climate engineering, maintenance, hosting and reception services, remote surveillance, energy efficiency, public lighting, green spaces, temporary employment agencies, subcontracting in the engineering and aerospace industries. Date of Relevant Committee 14 October 2024 REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included. ESG Considerations The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores . (C) 2025 Electronic News Publishing, source ENP Newswire