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Moody’s downgrades Tesco in spite of restructuring move

Moody’s downgrades Tesco in spite of restructuring move

Moody’s Investors Service has downgraded its senior unsecured long term rating on Tesco from Baa3 to Ba1, moving it from investment grade to non-investment grade or ‘junk’ status.

The ratings agency, which also downgraded its short term ratings for Tesco from Prime-3 (P-3) to Not Prime, stated the downgrade was a result of its expectation that the structural changes in the UK grocery retail market “will continue to challenge the company’s operating performance even with the benefits of the significant restructuring actions announced by the company”.

Yesterday Tesco announced a number of measures to put the company back on track including the closure of 43 unprofitable stores, cost cutting in the region of £250m and the decision not to pay a final dividend to shareholders for 2014-15.

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Sven Reinke, a vice president, senior analyst and lead analyst for Tesco at Moody’s, added: “We think that the company’s efforts to stabilise the UK operations and to protect the balance sheet, while helpful, will take time to implement and the company’s financial profile is likely to remain leveraged beyond what we consider to be commensurate with an investment grade profile.”