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Debenhams ratings downgraded by Moody’s

Debenhams has had its ratings downgraded for a second time in two months by ratings agency Moody’s.

Moody’s Investors Service downgraded the long-term corporate family rating (CFR) of the UK’s largest department store group Debenhams to Caa1 from B2.

It has also downgraded Debenhams probability of default rating (PDR) to Caa1-PD from B2-PD and the senior unsecured ratings on the GBP200 million notes due in 2021 to Caa1 from B2. The outlook on the ratings is stable.

Debenhams results for the year to 1 September 2018 (fiscal 2018), announced last week, were in line with Moody’s expectations at the time of the August downgrade. However, the rating agency said it sees a higher downside risk to its forecast profitability for Debenhams, most notably over the upcoming Christmas season, than previously anticipated, as the competitive environment remains “highly challenging”.

Moody’s expects pricing strategies of direct department store peers to remain very aggressive. For example House of Fraser, which emerged from administration in mid-August, now plans to keep more stores open than envisaged under previous ownership and the rating agency expects it to be focused on reinvigorating its appeal to customers.

David Beadle, Moody’s VP, and lead analyst for Debenhams, said: “Downgrading Debenhams to Caa1 reflects the challenges it faces to improve its credit quality during 2019 in order to achieve a timely and cost effective refinancing of its current debt facilities. In the meantime however, we expect the company to at least stabilise profitability, materially improve net cash generation, and for its liquidity to remain adequate.”

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