Debenhams and New Look credit ratings downgraded by Moody's

The credit rating agency downgraded the Debenhams rating to ’negative’ from ‘stable’ and said the department store chain currently represents a “very high credit risk”.

Moody’s said it adjusted Debenhams’ rating following its “weak operational performance” over Christmas, when it blamed a 3.4% fall in like-for-like sales on “weak store footfall”.

The agency also pointed to the ousting of chief executive Sergio Bucher and chair Sir Ian Cheshire from the board at the company’s dramatic AGM last week and the shelved sale of its Danish business Magasin du Nord as key reasons behind the downgrade.

Debenhams is in discussions with lenders as it bids to refinance £320m of debt, but Moody’s added that its access to “fresh capital will have been hindered” by the significant fall in its share price.

Despite the credit downgrade, Moody’s said the retailer’s liquidity would “remain adequate” after it stopped paying a dividend and reduced its capital spending.

David Beadle, senior credit officer at Moody’s, said: “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.

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

Moody’s last downgraded the company’s credit rating in August.

Debenhams declined to comment.

New Look

Moody’s has also downgraded New Look’s long-term credit rating to a C, its lowest rating.

It said New Look’s rating had been downgraded after it struck a debt-for-equity deal with a group of key shareholders earlier this week.

The agreement saw the fashion business slash its debt pile from £1.35bn to £350m, but Moody’s said New Look’s “proximity to a distressed exchange” meant that it had effectively defaulted on its loans.

Moody’s said the retailer’s outlook remained “negative” and warned that “failure to complete the debt restructuring as planned” could lead to even lower recoveries or, possibly, outright insolvency.

Roberto Pozzi, senior vice president at Moody’s, said: “We’ve downgraded New Look’s instrument ratings to reflect the proximity to a distressed exchange, which constitutes a default under our methodologies, and the higher-than-expected losses for financial creditors if the company’s proposed debt restructuring plan is successfully implemented.”

The rating downgrade represents a fresh blow to New Look, hours after it revealed that its Belgian retail arm had filed for insolvency.