Morrisons slapped with ‘speculative’ rating after takeover leaves chain saddled with debt
Morrisons has been slapped with a ‘speculative’ rating by a top credit agency after the private equity takeover of the chain last year left it saddled with debt.
Fitch downgraded the firm to ‘BB-’ rating yesterday, cutting its status from ‘investment grade’ to ‘speculative’.
Morrisons’ management and well-invested stores had prevented a further downgrade, Fitch said, with the heavy takeover debts the key driver.
“It will have £5.6bn gross debt, including refinancing a majority of £1.1bn prior notes,” Fitch said.
The new rating was offered on the assumption that bosses will now divert excess cash and the proceeds from any asset sales towards debt prepayments.
Morrisons’ strong cash flow had also been taken into account, Fitch said, which would allow it to deleverage at a rate of 0.5 times per year.
The debts come after Morrisons was snapped up by US private equity outfit Clayton, Dubillier & Rice in October for £7bn after a protracted bidding war with Fortress Investment Group.
The takeover debts have sparked fears that the firm may have to ramp up its prices and cause it to lose market share among the UK grocery market.
But analysts at Fitch said the firm currently stacked up well against rival Asda however.
“Morrisons compares favourably against ASDA, due to its stronger vertical integration that supports profitability, better-invested store format with a higher portion of freehold assets and already established access to the convenience market via its wholesale segment, which ASDA is still developing,” they said in the note yesterday.