New Look slugged with downgrade from Moody’s

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New Look downgrade

Influential credit ratings agency Moody’s has downgraded New Look’s corporate family rating and probability of default rating, almost one year after the retailer was last downgraded.

Moody’s said the latest downgrade was because of concerns about New Look’s ability to generate enough cash to continue trading.

It added that current debt levels were unsustainable, and that there was not enough internal cash flow generation to meet debts nor capital expenditure requirements.

The news comes less than a month after the fashion retailer unveiled a return to profitability in its first half, and while revenues and like-for-likes continued to dip, they were an improvement on the steep decline seen in previous trading updates.

New Look is also in the middle of carrying out its CVA scheme, which has so far seen the retailer exit the Chinese market completely as well as deliver cost savings of £70 million, with a further £8 million earmarked.

The retailer originally planned to close down 60 of its stores under the CVA, but earlier this month executive chairman Alistair McGeorge revealed that number could now increase to at least 90.

Moody’s now forecasts that New Look would have a cash balance of £20 million at the end of the 2019 fiscal year.

This is half of the £40 million it said it needs to run the business.

“Our downgrade reflects New Look’s inadequate liquidity profile and the unlikely financial support from its owner, Brait SE, which will lead to a restructuring of the company’s unsustainable capital structure,” Moody’s lead analyst Victor Garcia Capdevila said in a note.

“Although the turnaround strategic plan put in place by the new senior management team is improving the operating performance, EBITDA will not grow rapidly enough to refinance the current capital structure on reasonable terms and without significant financial losses for bondholders.”

Moody’s also said that Brait was unlikely to provide financial support to New Look, and that the investment company has written off 100 per cent of its investment in New Look.

New Look last had its credit rating downgraded by Moody’s in December 2017.

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