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Moody's revises Debenhams outlook to negative on refinancing concerns

Moody's on Jan. 16 changed its outlook for British department store operator Debenhams PLC to negative from stable, citing concerns that refinancing may ultimately result in losses for financial creditors.

The negative outlook covers Debenhams' Caa1 corporate family rating and Caa1-PD probability of default rating, in addition to the Caa1 rating on the company's £200 million senior unsecured notes due 2021. Moody's affirmed all the ratings.

The revision comes shortly after Debenhams reported a 3.4% decline in like-for-like sales during the Christmas holiday period. Moody's said the retailer's "weak operational performance" could affect its ongoing discussions with lenders about the refinancing of its £320 million revolving credit facility set to mature in 2020.

Asset disposals have been put on hold pending the outcome of Debenhams' discussions with its lenders, the ratings agency said. Moody's predicted earlier that the company would divest its Danish business, A/S Th. Wessel & Vett Magasin du Nord, ahead of a refinancing.

Debenhams' high debt burden and weak operating performance could hinder its ability to conclude a timely and cost-effective refinancing without new capital, Moody's said.

The agency also highlighted Sports Direct International PLC's dissatisfaction with Debenhams' board. Moody's said this was reflected in Debenhams' recent shareholder meeting, during which Chairman Ian Cheshire and CEO Sergio Bucher both failed to secure re-election to the board, and Cheshire then resigned from his role.

The London-based sports and leisure clothing retailer held 29.73% of Debenhams as of November 2018.

Moody's said it could upgrade its rating for Debenhams if the company achieves a successful refinancing and sustains positive free cash flow.

S&P Global Ratings also downgraded Debenhams and its senior unsecured notes to CCC+ from B-, with a negative outlook, citing weak Christmas sales and the ongoing disagreements between Debenhams' board and shareholders as increasing the company's refinancing risk.