Moodys downgrades Morrisons long-term debt rating

16th Sep 2015 08:14

(ShareCast News) - Morrisons' has made substantial progress in reducing its levels of debt over the last year and a half, but the competitive pressure from the discounters means that has been more than offset by a fall in earnings and retained cash flows, Moody's said after the close of trading on Tuesday.That drove the agency to lower its rating on the company's long-term debt to Baa3 from Baa2."Structural changes in the UK grocery sector, particularly the ongoing shift of consumers to discounters, convenience stores and online retailers, has caused Morrisons' earnings to contract beyond our previous expectations," said Sven Reinke, the lead analyst for Morrisons' at Moody's.The company's ability to service its debt was expected to remain below that necessary to maintain its previous Baa2 rating.Retained cash flow as a proportion of the supermarket chain's net liabilities has fallen to approximately 12%, from 14.2% in fiscal year 2014/15 and 14.8% in 2013/14.The grocer has not registered a positive quarterly like-for-like sales increase for three years running amid falling margins.On the positive side of things, Moody's pointed out Morrisons's defensive business profile, low seasonality, strong liquidity, fully funded pensions - a competitive advantage versus some of its larger peers - and low operating lease liabilities due to the high number of freehold estates.