Tesco hit by Moody's downgrade to junk status

9th Jan 2015 08:58

Tesco's shares gave up some of Thursday's gains on Friday morning trading after credit rating agency Moody's cut the UK grocer's corporate debt to 'junk' overnight.The US-based ratings agency, the first of the three major rating agencies to act following the grocer's much better-than-expected Christmas trading update, downgraded its rating by one notch to 'Ba1 stable'.This was despite the grocer's management meeting with the major agencies on 7 January, the day before the update, to explain how it was looking to significantly de-leverage by improved corporate performance, cutting costs and conserving cash.Moody's said that measures announced on Thursday to revive the struggling business were "helpful" but "will take time to implement" due to expectations that profits will remain challenged due to structural shifts in the UK grocery market.Credit analysts argued that Tesco's "financial profile is likely to remain leveraged beyond what we consider to be commensurate with an investment-grade profile".With Tesco's recently agreed £5bn credit facility, analysts said the day-to-day running of the group is unlikely to be too badly affected by the downgrade.