Tesco given junk status credit rating by Standard & Poor’s

Downgrade for Britain’s biggest grocer

“Junk” is a pretty harsh term to apply to any business. The Chambers dictionary defines “junk” as “cheap and worthless”.

But this is the rating that ratings agency Standard & Poor’s has today judged Tesco’s bonds to be worth in terms of credit quality: not worth having.

Junk status or a grade “C” bond rating is the lowest grade. Credit ratings agencies put out these ratings as an evaluation of a bond issuer’s financial health and its ability to pay a bond’s face value and interest.

The downgrade deals a further blow to the beleaguered supermarket, which has been embroiled in a £263m accounting scandal and issued four profit warnings last year.

Last week, shares in Tesco rose by up to 15% after chief executive Dave Lewis announced cost saving strategies including closing up to 43 stores and reducing dividends to shareholders.

But this hasn’t been enough to convince Standard & Poor’s not to take action.

The rating agency points to the continuing threat that Tesco faces from discount rivals.

“We anticipate that increased competitive and price pressures in the UK from both traditional and discount retailers could suppress any benefits from various management strategies oriented towards improving trading performance,” Standard & Poor’s said.

“Accordingly, we anticipate that Tesco’s profitability will continue to remain under pressure as market competition in the UK remains high.”

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Readers' comments (2)

  • Unless Standard & Poor’s knows something we don't - then putting Tesco bonds in the junk category is just plain silly!

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  • Tesco bonds are repayable in 2020. For them not to be repaid, Tesco would have to be out of business by then.

    Does SubStandard and PissPoor really think that Tesco is going to go bust in the next 5 years?

    As Brian M says, just plain silly.

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