Following an unprecedented fall in Matalan‘s profits, ratings agency Standard and Poor‘s has raised concerns about the value retailer‘s debt.
S&P said that it was lowering its long-term credit-rating on Matalan after the fashion and homewares retailer announced a 90% drop in its Q2 results following operational problem at its Liverpool based warehouse.
The plummet from £21.9m in 2014, its second consecutive quarterly profit warning, to a mere £2.3m suggests that the company could struggle with excessive borrowings.
“We are revising our assessment of Matalan‘s risk profile to ‘vulnerable‘ from ‘weak‘ and its management and governance practices to ‘weak‘ from ‘fair‘”, S&P said.
“We consider that Matalan faces a risk of its capital structure becoming unsustainable over the long term if the company is not on track to overcome the operational setbacks and restore its earnings to historical levels in the next 12-24 months.”
Following failed attempts to sell the business, founder John Hargreaves carried out a bond refinancing of the company in 2010 in order to take out a £250m dividend – Matalan has been carrying a heavy debt load ever since. Five years later, debts are nearly at £500m.