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Morrisons is facing a near-£100m hit to its borrowing costs amid market turmoil adding pressure on the supermarket chain.
According to The Times, over half of the grocer’s longer-term debt is at a floating rate and it has no interest hedging in place.
Ratings agency Moody’s reportedly estimates that recent rises in interbank lending rates will push up Morrisons’ annual interest expense by £35m to £335m, and the company has a debt pile of £6.6bn.
Additionally, Moody’s forecasts that every 25 basis point rise in interest rates will increase Morrisons’ annual interest by another £7m to £8m. Economists expect the Bank of England to increase rates from 2.25% to 4.25% within six months, translating into a £60m hit.
Morrisons was acquired by private equity giant Clayton, Dubilier and Rice (CD&R) for £7bn last year. However, In the third quarter of 2022, the supermarket’s underlying profits almost halved to £177m.
The Times said that some £1bn of bonds issued by Morrisons are trading at 77p in the pound, implying that the market views the company as a risky investment. It added that the sudden rise in borrowing costs will potentially complicate CD&R’s efforts to sell and lease back the grocer’s warehouses and food manufacturing sites.
