Morrisons is being dragged down by huge debt-fuelled private equity deal, top credit rating agency warns
Morrisons is struggling under the weight of debt from its private equity takeover, a credit rating agency has warned.
The supermarket was slapped with a ‘speculative’ debt rating by Fitch, which indicates ‘an elevated vulnerability to default risk’.
The agency warned Morrisons’ rating would be even lower were it not for the grocer’s strong management team and profitability.
Debt fears: Morrisons was slapped with a ‘speculative’ debt rating by Fitch, which indicates ‘an elevated vulnerability to default risk’
The warning was echoed by rival ratings agency Moody’s as it cut Morrisons’ credit score.
Morrisons was taken over by New York-based private equity house Clayton, Dubilier & Rice in October for £7billion. The deal saddled it with £5.6billion of debt which it will have to service, leading to fears it will be unable to keep prices low.
Fitch’s rating will be a further blow as a low credit rating makes it more expensive for companies to refinance and borrow.
Morrisons and Asda, which also recently fell into private equity hands in a debt-fuelled takeover, have been falling behind rivals since the deals.
Figures from market research group Kantar show they losing market share, raising fears private equity barons will not make good stewards.
They have been accused of raising prices more than rivals and have seen sales fall further than other grocers.
Fitch analyst Sophie Coutaux said: ‘We think the business is robust, the stores are well developed and invested.
‘But to offset this, the leverage is very high for the rating… even incompatible with the rating.’