Moody's Investors Service has said that it has downgraded UK supermarket group Morrisons to a corporate family rating Ba1, from an issuer rating Baa2.
Moody's said that the downgrade was triggered by the acquisition of the business by Clayton Dubilier & Rice, an acquisition that was financed through a combination of equity capital, including ordinary and preference shares, and credit facilities that are expected to be refinanced through long term debt.
It added that the downgrade to Ba1 'does not reflect the final financing structure for the acquisition, but reflects a view that post-acquisition, Morrisons' rating will be no higher than Ba1, and is likely to be lower depending on the mix of debt and equity of the ultimate financing of the transaction from the new owners and the future strategy of the company'.
Its outlook on Morrisons remains 'under review', which will be influenced by the impact of the takeover on the retailer's future business structure, capital structure and financial policies.
Possible Further Downgrades
Moody's said that it will 'assess the ultimate structure and funding mix of the acquisition financing arranged by CD&R and the potential increase in leverage at Morrisons' level', which could in turn lead to the ratings being downgraded further.
'Moody's considers governance risks in the assessment of Morrisons' credit profile and in particular the inherent challenges in implementing effective governance within a sponsor-led transaction including financial policies which are likely to maintain relatively high leverage,' it said. 'This is mitigated by the company's history of complying with financial, legal and regulatory requirements as a listed entity.'
Clayton Dubilier & Rice was announced as the winner of an auction process to take over the retailer back in October.