S&P downgrades Matalan

Standard & Poor’s said it lowered the long-term corporate credit rating on Missouri TopCo Ltd., a holding company for Matalan, to CCC+ from B-.

The agency also said it lowered the rating on the £342 million senior secured notes issued by Matalan Finance Ltd. to CCC+ from B-. The recovery rating on this debt is unchanged at 3, indicating 50% to 70% expected default recovery.

S&P also said it lowered the rating on the £150 million second-lien notes issued by Matalan Finance plc to CCC- from CCC. The recovery rating on these notes is 6, reflecting 0 to 10% expected default recovery.

The outlook is stable.

Matalan announced a second profit warning related to the operational issues it faced at its Knowsley warehouse, which continue to materially affect its earnings and cash flow, S&P said.

Matalan’s supply and distribution network could be more severely affected than previously thought, the agency said, and the company could fail to restore its earnings capacity to a historical annual average of about £100 million.

The downgrades also reflect the operational issues in the Knowsley warehouse, including its low capacity utilization, substantial staff turnover, lower-than-budgeted efficiency and a resulting decline in operating margin and an inability to meet online demand, S&P said.

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