S&P downgrades DIA

S&P said it lowered the long-term issuer credit rating on Distribuidora Internacional de Alimentacion (DIA) to CCC from CCC+, along with the issue rating on its unsecured notes to CCC from CCC+.

The agency also said it revised the recovery rating on the notes to 4 from 3, reflecting the increased amount of priority bank debt in DIA's capital structure following the December 2018 refinancing.

The outlook is negative.

The company has financed its working capital and short-term commitments until the end of May, S&P noted.

This is the first step in its plan to achieve a sustainable long-term capital structure, which also includes an equity raise of at least €600 million, the agency said.

L1 Retail, DIA's largest shareholder with 29% of shares, also launched a voluntary tender offer and announced its intention to support a €500 million capital increase conditional on the tender offer and an agreement with DIA's lending banks regarding a viable, long-term capital structure for DIA, S&P explained.

The agency said it believes that both plans entail significant execution risks and uncertain outcomes.

The negative outlook reflects near-term pressures on DIA's liquidity, the execution risk of its recapitalization plan and uncertainties around the group's ability to turnaround the business, S&P said.

Along with the uncertainty and execution risk, the downgrades reflect near-term refinancing risk, the agency said.

DIA's new management is currently in the process of reviewing and finalizing the group's market positioning, strategic and operational focus in light of the various challenges it faces, S&P said.

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