Number of troubled retailers tops financial crisis total
Bankruptcy ‘a real possibility’ for firms, Moody’s analyst says
The list of U.S. retailers with troubled financials that could make them potential bankruptcy risks now totals 22, according to Moody’s Investors Service — topping the 19 recorded at the peak of the Great Recession.
Confronting a major shift to online shopping, Sears Holdings, Neiman Marcus Group and others face a “perfect storm,” senior Moody’s retail analyst Charles O’Shea said Thursday as he invoked the name of the Massachusetts fishing boat lost with all hands in a 1991 tempest.
The disaster, chronicled by author Sebastian Junger, later was made into a movie featuring actors George Clooney and Mark Wahlberg.
“You’re on the Andrea Gail right now, and the water’s starting to get very choppy,” O’Shea said of the financial conditions buffeting troubled retailers.
And the worst could be yet to come. The ranks of distressed firms and retail sector defaults are likely to grow during the next 12 to 18 months, the ratings agency predicted in a separate report issued Wednesday.
Nonetheless, the companies on the distressed list represent just 16% of the retailers analyzed by Moody’s.
“The majority of retailers remain fundamentally healthy,” O’Shea said in a statement issued with the report.
The rating giant tapped companies for inclusion on the list based on an analysis of their financial liquidity, ability to manage maturing debt by refinancing, credit profiles, competition challenges, ownership and management structure.
Those that rank low in multiple categories were given Caa ratings, which O’Shea characterized as “deep junk.”
“When you’re down there in C-a land, bankruptcy is a real possibility,” he said.
Although it is impossible to predict the financial future of the companies, an earlier Moody’s list of distressed retailers issued in March proved prophetic in a few cases.
Discount footwear company Payless ShoeSource and Rue21, a teen fashion retailer, have since filed for bankruptcy court protection. Gymboree, a specialty seller of children’s apparel, missed a June 1 interest payment on senior notes due in 2018.
Companies tagged with a Caa rating by Moody’s can and do get higher ratings if their liquidity, debt management or other financial metrics improve.