Tesco was dealt a new blow yesterday as Standard & Poor’s joined Moody’s Investors Service in cutting debt at the UK’s biggest grocer to below investment grade.
The senior long-term credit rating was lowered to BB+ from BBB-, the last investment-grade level, S&P said today in a statement.
Following the downgrade, Tesco’s outlook is stable, S&P said. Moody’s last week became the first rating provider to cut Tesco debt to junk, saying measures announced by chief executive Dave Lewis to revive the struggling retailer will take time to implement.
Moves outlined by Mr Lewis included the closure of 43 stores, the grocer’s head office and its pension program, along with the sale of the Blinkbox movie-streaming unit, price cuts and £250m (€320m) of cost savings.
The cuts by Moody’s and S&P will probably add to the grocer’s borrowing costs and increase pressure on Mr Lewis to raise capital quickly, either by divesting businesses or selling new shares. The CEO said last week there was no need for a fire sale of assets, describing Tesco’s funding and liquidity as “really robust” after the company secured a £5bn revolving credit line last year.
The cuts come after Tesco chief financial officer Alan Stewart met with credit-rating companies last week in an effort to persuade them to keep their investment-grade ratings.
Tesco has had one of its toughest years, issuing three profit warnings since June as the loss of shoppers to discounters Aldi and Lidl was compounded by the discovery of an accounting black hole.
Mr Lewis is reviewing all aspects of the business, with analysts speculating it may divest operations in countries such as Thailand or South Korea. Tesco said last week that it appointed Goldman Sachs to “explore strategic options” for the Dunnhumby data-analytics unit.
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