Tesco's credit rating cut to just two notches above junk

There doesn't seem to be a good news day for Britain's largest supermarket lately, as the ratings agency cuts its debt to Baa2.

by Rachel Savage
Last Updated: 25 Jun 2014

Falling sales, falling market share and now a falling credit rating. Things were already going downhill for Tesco boss Philip Clarke - a debt downgrade is the last thing he needs.

Moody’s cut the supermarket’s credit rating from Baa1 to Baa2 – just two notches above junk status and the high interest rates that come with it. The ratings agency cited Tesco’s rash of recent rubbish results: annual profit down 6% in the year to February and sales continuing their slide in the first quarter.

‘We have downgraded Tesco’s rating owing to the increasingly difficult conditions in the UK retail grocery market,’ Sven Reinke, a senior analyst at Moody’s, said yesterday. ‘We expect these conditions to continue affecting the company’s credit profile negatively over the next 12-18 months.’

The downgrade comes after rival ratings agency Standard & Poor’s lowered its outlook on Tesco from ‘stable’ to ‘negative’ at the end of April, although it reiterated its BBB+ rating.

Tesco’s response was a valiant attempt to appear both responsive and blasé. ‘Moody’s announcement reflects the challenges for the sector as a whole, and the impact that they expect this is likely to have on our near term performance,’ the supermarket said in a statement.

‘However, they also acknowledge we have a plan to address structural challenges in the sector and we remain market leader.’

Investors weren’t too concerned: shares fell 1.08% yesterday and are hovering in positive territory today. After all, anyone with an eye on the grocery market will have figured out Britain’s biggest supermarket is no longer on the up.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today