Credit ratings agency Moody’s has downgraded New Look’s corporate family rating and probability of default rating, citing concerns about its ability to generate enough cash to continue trading.
Moody’s said the retailer’s current debt levels were unsustainable and that there was insufficient internal cash flow generation to service its debts and meet its capital expenditure requirements.
It forecasts that New Look will have a cash balance of £20m at the end of the 2019 fiscal year – just half of the £40m needed to run the business.
The struggling retailer has set out plans to close 85 stores in the UK and has pulled out of the Chinese market altogether.
“Our downgrade reflects New Look’s inadequate liquidity profile and the unlikely financial support from its owner, Brait, which will lead to a restructuring of the company’s unsustainable capital structure,” said Victor Garcia Capdevila, Moody’s lead analyst for New Look.
“Although the turnaround strategic plan put in place by the new senior management team is improving the operating performance, EBITDA will not grow rapidly enough to refinance the current capital structure on reasonable terms and without significant financial losses for bondholders.”