Moody’s upgrades New Look’s credit rating after slashing debt by £1bn

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Moody's New Look
// Moody’s upgrades credit rating for New Look after the retailer completed its restructure
// Restructure entailed New Look slashing debt by £1bn in debt-for-equity refinancing
// New Look’s turnaround scheme has also started to bear fruit

Moody’s has upgraded New Look’s corporate family rating and probability of default rating in the wake of the retailer slashing £1 billion worth of debt.

The influential credit ratings agency said New Look’s probability of default rating has upgraded from Ca-PD to Caa2-PD/LD, while its corporate family rating has been improved from Caa3 to Caa2.

Moody’s has placed the ratings on review for further upgrade.

This will focus on New Look’s business plan, as well as its new capital structure and future liquidity profile.

The retailer’s credit ratings upgrade comes a week after New Look announced that it had slashed its debt by around £1 billion after completing a debt restructure, allowing it to further invest in its turnaround strategy.

In January, the fast fashion chain launched a debt-for-equity swap, a painful refinancing process where majority ownership was handed to bondholders in a bid to cut debt from £1.35 billion to £350 million.

It also repaid its £80 million bridge facility.

The refinancing process has now been completed, and New Look’s restructure has since led to a capital raise of £150 million.

The retailer said the removal of maturing loans means it management can now focus on delivering long term growth and accelerate investment in its turnaround strategy.

New Look has been strengthening its offering in its core UK market by closing down standalone menswear stores and exiting international markets.

Its turnaround scheme, which featured a CVA, has also been bearing fruit with signs of improvement in like-for-like sales and a return to profit.

“While we saw New Look’s distressed exchange as a default, the subsequent financial restructuring has significantly improved its leverage to 7.7x from 12.3x, triggering today’s upgrade,” Moody’s senior vice president and New Look lead analyst Roberto Pozzi said.

In its last trading update for the year-to-date for the 39 week period ending December 22, New Look said like-for-like brand sales fell 2.3 per cent, which it said was a third consecutive quarter of improvement in like-for-likes and compares to the 10.7 per cent plunge recorded in the same period the year prior.

Meanwhile, underlying operating profit swung to £38.5 million, compared to an underlying operating loss of £5.1 million for the previous year-to-date period.

The fast fashion retailer also highlighted that in its third quarter, which included a fair chunk of the crucial Christmas trading period, UK like-for-likes lifted 0.9 per cent.

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