Edcon rating slashed after debt default
Edcon had its credit rating cut by Standard & Poor’s and Moody’s Investors Service after the country’s biggest clothing retailer missed a coupon payment this past week and asked investors to take losses on debt.
The assessment was lowered to CC, S&P’s fourth-lowest speculative grade, which it defines as expecting “default to be a virtual certainty”, from CCC+, the ratings company said on Thursday.
Moody’s cut the level on senior notes to Ca from Caa3 in a separate statement. The outlook was negative, indicating more reductions might happen, said both S&P and Moody’s.
Edcon on Tuesday asked investors holding $472 million (R5.8 billion) worth of bonds due in 2019 to swap the debt and accept losses to help it shore up its finances.
Moody’s said the offer “will constitute a default under an instrument within the company’s broader capital structure”. The exchange “also creates uncertainty around the broader implications on Edcon and its overall credit profile”.
Bain Capital bought Edcon in a private equity deal in 2007 for R25 billion, using debt to fund the purchase.
Bain has been unable to exit its investment, with Edcon having slipped into losses. Edcon faces at least another R5 billion in debt obligations within a year and more than R26 billion in the next three years, according to the company’s annual report, which was released this week.
Debbie Millar, a spokesperson for Edcon, said: “The rating downgrade and language is standard process required by the agencies because the exchange offer is compensating bond holders below the original principal amount and not because we are unable to fulfil any financial obligations.
“Bondholders are not forced to do anything, although the offer is at a significant premium to where the bonds were trading before it launched.”