Credit ratings agency Moody’s has placed Shop Direct’s credit rating under review after its losses grew by 645% in the 52 weeks to 30 June as a result of a £241m provision for customer redress payments for historical shopping insurance sales.
Moody’s has placed under review the etailer’s B2 corporate family rating, and B1-PD probability of default rating.
The review for downgrade reflects Shop Direct’s increased provisions for customer redress by £150m in the last quarter of the 2019 fiscal year, leading to an increase in debt.
Moody’s does not expect Shop Direct to have any issues with liquidity in the months ahead.
Its review will focus on the sources and terms of funding chosen by the business to deal with these increased customer redress payments and the subsequent impact on its credit profile.
Shop Direct reported a loss before tax of £185.5m for the 52 weeks to 30 June, compared with a £24.9m loss in 2017/18 due to an “unexpected surge in claims” in August. It received more than 276,000 PPI claims in the month, compared with a “typical” monthly run rate of 40,000.