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Moody's reassesses New Look and Debenhams

Credit ratings agency Moody’s has downgraded New Look’s senior secured notes rating and changed the outlook on Debenhams’ corporate family rating and probability of default rating from stable to negative.

Following New Look’s proposed restructuring plan announced earlier this week, Moody’s has downgraded the retailer’s rating of Caa3 on the £700m fixed rate notes and €415m floating rate senior secured notes that are due 2022 to C.  

Its corporate family rating, probability of default rating and unsecured notes rating remain unchanged at Ca, Ca-PD and C, respectively. 

New Look agreed a debt-for-equity swap with a group of senior secured noteholders on 14 January, which is aimed at reducing its long-term debt by 80% from £1.35bn to £350m. 

Roberto Pozzi, senior vice-president at Moody’s and 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.”

The news comes after New Look Belgium filed for insolvency on 16 January as part of its review of non-core international markets. 

Concerning Debenhams, the credit ratings agency announced a “Caa1 negative outlook” corporate family rating and “Caa1-PD negative outlook” probability of default rating, citing concerns about the company’s “high debt burden” and “weak operational performance”.

The Caa1 rating on the £200m of senior unsecured notes issued by Debenhams due in 2021, was also altered to a negative outlook.

David Beadle, Moody’s vice-president and senior credit officer, and lead analyst for Debenhams, said: “Today’s change in outlook reflects our view that there is a risk that refinancing negotiations may not result in a timely and cost-effective solution, and thus the process could ultimately culminate in losses for financial creditors.

“However, notwithstanding this and the company’s elevated leverage we continue to view Debenhams liquidity profile as adequate for the time being.”

Moody’s expressed concerns over Debenhams’ discussions with lenders on the refinancing of its £320m revolving credit facility, due to mature in June 2020.

The news follows the retailer’s AGM where Mike Ashley, who owns almost 30% of Debenhams, won enough votes to force chairman Sir Ian Cheshire to resign and chief executive Sergio Bucher off the board.

Debenhams posted a disappointing Christmas trading update. Group like-for-like sales dipped 3.4% in the six weeks to 5 January and UK sales slipped 6.2% during the 18 weeks to the same date.

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