Monday 5 December 2022

Morrisons Suffers Credit Rating Downgrade

Morrisons has had its credit rating downgraded due to the £6bn worth of debt it is now saddled with from the takeover by CD&R and shrinking profits amid poor sales performance.

Credit rating agency Fitch highlighted that the struggling grocer has been pushing up prices faster than its rivals, causing it to lose market share. It also noted that soaring debt interest costs will lead to a £200m drain on Morrisons’ profits over the next three years. 

Fitch downgraded the Morrisons’ debt rating from a ‘speculative’ BB level, to a ‘highly speculative’ B+, suggesting a ‘material’ risk of it defaulting.

It is the latest blow for the retailer since it fell into the hands of CD&R last year and adds to growing concerns about the role of private equity firms, which rely on vast amounts of debt to fund takeovers.

In September, Morrisons reported a halving of third-quarter profits as it lost sales to the discounters and faced “unprecedented inflationary pressures” in its food manufacturing operations. The grocer’s like-for-like sales also fell 3.1% as more competitively priced chains tempted cash-strapped shoppers to their stores.

Chief Executive David Potts has come under pressure to revive the ailing chain, with industry experts branding the takeover by private equity “at best a distraction, and at worst a bit of a disaster”.
Morrisons was overtaken in market share terms by Aldi earlier this year, with Lidl stating last month that it had the “momentum” to leapfrog the traditional Big Four supermarket.

Despite the downgrade, Fitch said Morrisons’ sales decline would reverse in the coming year. It noted that the group’s performance would be boosted by the acquisition of McColl’s, which was cleared by competition regulators at the end of October.

NamNews Implications:
  • Key is where Morrisons goes from here.
  • Sale & leaseback of essential assets would be the obvious route for a PE-owned company, as interest rates rise...
  • Anticipate sale of all outlets, leaseback of profitable outlets...
  • a way back to more profitable sales!
  • Meanwhile, ensure your fair share of sales & investment, going forward…
#PrivateEquity #SaleAndLeaseback #InterestRates

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