Moody’s, the influential ratings agency, has downgraded New Look’s senior secured notes rating, just days after the retailer unveiled a restructuring deal aimed at cutting its debts by £1bn.
On Monday, New Look agreed a debt-for-equity swap proposal to reduce debt from £1.35bn to £350m, and also announced a £150m capital raise through the issuing of new bonds.
Moody’s downgraded the rating of the £700m fixed rate notes and €415m floating rate senior secured notes which are due in 2022 to C, from Caa3. It follows a downgrade in November after the retailer revealed a profitability drop.
Roberto Pozzi, Moody’s lead analyst for New Look, said: “We’ve downgraded New Look's instrument ratings to reflect the proximity to a distressed exchange, which constitutes a default under our methodologies, and the higher-than-expected losses for financial creditors if the company's proposed debt restructuring plan is successfully implemented.”
Moody’s said the downgrade was motivated by doubts over the restructuring, adding that the “negative outlook also reflects the company's ongoing decline in sales and cash outflows”.
New Look is fighting against retailer headwinds in the UK, where it is closing 85 stores currently. Its like-for-like sales sunk by 5.7 per cent in December as it struggled with brutal high street conditions.
The debt-for-equity swap proposed earlier this week is set to sting funds which hold £176m in unsecured assets at the firm, which have been offered an equity stake in the retailer of just 2 per cent.
Yesterday, New Look Belgium filed for bankruptcy, as the company pulls out of non-core operations across Europe and in China, where it has 120 stores. The international firm, headquartered in Weymouth, Dorset, is owned by South Africa’s Brait.
New Look declined to comment. Announcing the plan on Monday, its executive chairman Alistair McGeorge said: ““Today’s agreement represents a critical step in our turnaround plans and lays the foundations to secure the future and long-term profitability of New Look by materially deleveraging our balance sheet and providing us with the financial flexibility to better attack our future.”
Moody’s sent shares sliding at fellow retailer Debenham’s earlier today, after lowering its outlook for the beleaguered retailer from stable to negative.