// Morrisons is set to take a near 100m hit on its borrowing costs
// Moody’s estimates that recent rises in interbank lending rates will push up the grocer’s annual interest expense by £35 million to £335 million
Morrisons is bracing for a £95m hit in its borrowing costs as its debt pile soars amid market turmoil.
According to credit rating agency Moody’s estimates, the supermarket chain is set to face an additional £35m in annual interest payments to £335 million on its £6.6bn of borrowing.
It will face a further £60m if the Bank of England raises interest rates to 4.25%, as economists expect.
Subscribe to Retail Gazette for free
Sign up here to get the latest news straight into your inbox each morning
Each 0.25 percentage-point increase in the Bank’s lending rate will cost Morrisons an additional £7m to £8m, The Sunday Times reported
The significant spike in borrowing costs will raise further questions about the role of private equity firms, which rely on huge amounts of debt to fund takeovers, in the UK grocery sector.
It is the latest blow for the retailer since it fell into the hands of American private equity firm Clayton, Dubilier and Rice last year amid strong competition from two US-based investment groups.
Since the £7bn deal back in October, the Bradford-based grocer has seen its market share tumble and lost its coveted spot in the ‘Big Four’ of UK supermarkets to discounter Aldi although this week a source close to CD&R told The Sunday Times that Morrisons had access to substantial cash.
At the time of the sale last year, Morrisons chairman Andrew Higginson said CD&R’s offer was “excellent value” and would protect the “fundamental character of Morrisons for all stakeholders”.
Click here to sign up to Retail Gazette‘s free daily email newsletter
