Debenhams' credit rating downgraded in further blow to retailer

Debenhams has sought to reassure investors after a downgrade by credit ratings agency Moody’s.

The department store chain, which has issued three profits warnings this year, issued a statement to the stock exchange saying it “remains profitable and cash-generative, and our banks are supportive” after Moody’s said it judged that Debenhams was more likely to default on its debts.

Moody’s said it was downgrading Debenhams’ credit rating one notch to B2, indicating high risk, to reflect a highly competitive and promotional environment in the UK with “a multitude of competitors, some of which are in financial difficulties and thus discounting aggressively”.

The move will make it harder for Debenhams to borrow money and adds to pressure on the company, which has also been hit by reduced cover for suppliers by credit insurers. A reduction in cover tends to mean that suppliers demand payment upfront, putting increased strain on a retailer’s finances.

“Downgrading Debenhams to B2 reflects its weaker-than-expected profitability,” said David Beadle, a Moody’s credit officer and lead analyst for Debenhams. “The negative outlook factors in the possibility of a further drop in profits or weaker liquidity.”

The rating agency nevertheless expects cost-saving measures, including cancelling dividends to shareholders, will lead profitability to stabilise next year.

Debenhams said it had taken “decisive action to strengthen our financial position” as it navigated tough conditions, including a review of non-core parts of its business and “continuing constructive discussions with landlords”.

On Tuesday, the Guardian revealed that Debenhams has put a price tag of up to £250m on its Danish department store chain Magasin du Nord, as it looks to flush out potential buyers.

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Last year Debenhams’ chief executive, Sergio Bucher, set out ambitious plans to turn stores into destinations with new restaurants, as well as nail and blow-dry bars and an updated Designers at Debenhams fashion range.

But Bucher’s plans have been waylaid by weak consumer spending coupled with heavy discounting, as its high-street rival House of Fraser fights for survival.

All retailers are under pressure as costs have risen in a weak market and a switch towards shopping online. But department stores, which are usually tied in to long leases on large premises, are finding the times particularly tough.


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