The downgrade comes days after Casino said it had agreed a long-awaited debt restructuring deal with creditors led by Czech billionaire Daniel Kretinsky to avert bankruptcy in an operation that would "massively dilute" its shareholders.
Under the agreement in principle, 1.2 billion euros of new money will be injected into Casino and its debt of 6.4 billion euros ($7 billion) will be restructured. A consortium led by Kretinsky will end up owning 50.4% to 53% of Casino shares.
"We expect Casino's default to be imminent and a virtual certainty," S&P said in a statement.
It added that the default could arise from the non-payment of interest or debt, or from the execution of the announced transaction which it said "we would view as a distressed debt exchange and tantamount to default, as the obligations will not be fulfilled as originally promised."
S&P also revised down the recovery rating on Casino's senior unsecured debt to zero from 25% due to Casino's outstanding tax and social security liabilities, the disposal of its last stake in Assai for liquidity needs, and the fact that Casino's revolving credit facilities are currently fully drawn.
S&P's negative outlook reflects the fact that it will lower its credit rating to 'D' if Casino executes the envisaged restructuring, or if the group stops servicing its debt according to the original schedule, it said.
France's sixth-largest retailer was brought to the verge of default after years of debt-fuelled deals and recent losses in market share to rival supermarket groups.
The Kretinsky deal brings an end to the 30-year reign of Casino CEO and top shareholder Jean-Charles Naouri, 74, who controlled Casino via his listed holding company Rallye.
(Reporting by GV De Clercq, editing by Silvia Aloisi)
