US credit-rating agency Standard & Poors cut its view on Thursday on Marks & Spencer’s (MKS) long-term sterling and foreign-currency debt from BBB-, the lowest level of investment grade, to BB+ which is regarded as sub-investment grade or ‘junk’. M&S shares fell 5% to 105p by midday.

The move affects billions of pounds and hundreds of millions of dollars of unsecured debt with maturities ranging from December 2021 all the way to 2037, and means the firm will likely have to pay higher interest rates on its borrowing when it needs to refinance.

According to Bloomberg, the company’s £250m bonds due in 2027 are already trading more than 10% below their face value, having traded at par as recently as 9 March.

CLOTHING & HOME WOES

S&P said it cut its credit rating on the high-street retailer because it expects the coronavirus to result in significantly lower sales for the firm’s core clothing and home divisions, which will not be fully offset by food and online sales. It also warned it could reduce the rating still further if the crisis drags on into the second half of the year.

M&S warned last week that the pandemic would ‘severely impact’ its clothing, home and international businesses. As well as withdrawing all financial guidance for the current year, the firm cancelled its dividend.

The retailer said it expected a prolonged downturn in clothing & home sales, ‘at the very least in the first 3-4 months of the next financial year’, and that margins would also be severely impacted by big markdowns to clear its surplus of unsold seasonal stock.

Britain’s retailers were already struggling before the current crisis with weak consumer confidence and low levels of customer footfall.

S&P downgraded the credit ratings of two of Europe’s biggest airlines, the UK’s International Consolidated Airlines (IAG) and Germany’s Lufthansa, to the lowest level of investment grade last week and warned that it could lower their rating to junk depending on how long the coronavirus crisis lasts.

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Issue Date: 26 Mar 2020