Ratings agency Moody's has said that it believes that LetterOne's tender offer for Spanish retailer DIA, announced earlier this week, could create 'uncertainties' for the group's creditors.
If successful LetterOne's offer, which would require the acceptance of shareholders holding at least 35.5% of DIA shares, would support a €500 million capital increase for DIA provided it first reaches a satisfactory agreement with DIA’s banks.
'Although a capital increase would strengthen DIA’s credit ratios, we believe the limited information that is currently available on LetterOne's future negotiations with DIA's banks and its intention with regards to the retailer's future capital structure create uncertainties for creditors, a credit negative," Moody's said in s statement.
LetterOne currently holds 29% of the share capital at DIA, and has proposed buying the shares it doesn't currently own for €0.67, which represents a 56.1% premium on DIA's share price on 4 February.
As well as being accepted by shareholders, the transaction would also require authorisation by the Spanish securities market regulator, as well as antitrust approval.
Viable Structure
'If the tender offer is successful, LetterOne will negotiate with banks to achieve a “viable, long-term capital structure” for DIA,' said Moody's, adding that several banks agreed to provide DIA with credit facilities totalling €896 million last December.
'We would consider any transaction that allows DIA to avoid default but causes creditors economic losses relative to the original promise to pay as a distressed exchange,' it said.
'We believe that a capital increase is necessary to stabilise DIA’s liquidity and credit quality. Our ongoing rating review process will focus on the outcome of LetterOne’s tender offer and, if it is successful, the negotiations with banks and the implications for bondholders.
'We will also monitor DIA’s short- and medium-term liquidity, its ability to strengthen governance as well as future market share and earnings trends.'
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
