Moody’s lowers Debenhams’ credit rating from “stable” to “negative”

Debenhams Christmas
// Moody’s has downgraded Debenhams’ credit rating to “negative”
// The follows last week’s boardroom coup and a weak Christmas trading update
// Moody’s said Debenhams currently represents a “very high credit risk”

Influential credit rating agency Moody’s has downgraded Debenhams’ credit rating to “negative” from “stable” following last week’s boardroom coup and a weak Christmas trading update.

Moody’s said the department store chain currently represents a “very high credit risk”.

The agency said it modified Debenhams’ rating following its “weak operational performance” over the festive period, when it recorded a 3.4 per cent decline in like-for-like sales due to “weak store footfall”.

Moody’s also said the ousting of Debenhams’ chief executive Sergio Bucher and chairman Sir Ian Cheshire the board – thanks to a shareholder coup led by Mike Ashley – earlier this month was another reason for the downgrade.

Debenhams is currently in discussions with lenders as in a bid to refinance £320 million of debt.

However, Moody’s said that its access to “fresh capital will have been hindered” by the major fall in its share price.

The agency said the retailer’s liquidity would “remain adequate” following a reduced capital spending, regardless of the credit downgrade.

“Today’s change in outlook reflects our view that there is a risk that refinancing negotiations may not result in a timely and cost-effective solution and thus the process could ultimately culminate in losses for financial creditors,” Moody’s senior credit officer David Beadle said.

“However, notwithstanding this and the company’s elevated leverage, we continue to view Debenhams liquidity profile as adequate for the time being.”

In November, Debenhams’ share prices had its worst daily decline following a period of slumping by as much as 20 per cent.

For the year running up to September 1, Debenhams posted a statutory loss of £491.5 million, down from a profit of £59 million profit a year earlier.

Moody’s had also lowered Debenhams’ corporate family rating from B2 to Caa1 back in November.

A separate rating which measured the likelihood that Debenhams would default on one or more of its debt obligations was also downgraded from B2-PD to Caa1-PD, and Moody’s attributed the downgrades to the “aggressive” pricing strategies of Debenhams’ rivals amid a highly challenging market.

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