Johannesburg - Standard & Poor's Ratings Services on Tuesday raised its corporate credit rating on South Africa-based non-food retailer Edcon Holdings to CCC from selective default, but noted the outlook remained negative.
The rating improvement puts the retailer in the ‘substantial risks’ category, but improves its standing three notches as it has moved above both the ‘default imminent’ and ‘extremely speculative’ categories.
The rating is on Edcon's senior secured debt, which comprises €617 million and $250 million senior secured notes due March 2018, the extended senior secured term loan due December 2017, and the new senior secured PIK toggle notes due June 2019.
It also assigned a 'B-' issue rating to Edcon's super senior secured debt, which comprises a R3.417 billion super senior RCF term loan; R1.850 billion super senior refinancing facility; €36 million super senior term loan, all due December 2017; and the super senior PIK notes due June 2019.
Also read: Edcon trims debt by R4.5bn
Edcon owns outlets such as Edgars and Jet.
S&P says the upgrade reflects its view that the amendment and extension of the capital structure and the exchange offer completion have extended Edcon's debt maturity profile and reduced cash interest, resulting in an improved short-term liquidity position.
However, it warns, “at the same time, we consider that Edcon's capital structure remains unsustainable in the long term, given its high debt and interest expenses, the refinancing risk on significant debt maturities concentrated in December 2017 and March 2018, and the unhedged exposure to foreign currency risk-of-debt.”
It adds: “Although the group's liquidity position has meaningfully improved, with no material maturities in the near term, we note that substantial debt maturities, which represent over 35 percent of Edcon's reported debt, will come due in December 2017. We view this concentration of debt maturities as posing material refinancing risk to Edcon's capital structure.”
S&P expects Edcon’s reported operating cash flow before working capital adjustments to remain negative over the coming two years.
Edcon could be rerated if it successfully refinances its debt 12 months ahead of its maturities, rendering remote the risk of default, a distressed exchange, and redemption.
IOL