Ratings agency Moody's has announced that it has downgraded the senior unsecured long-term rating of Spanish grocer Distribuidora Internacional de Alimentacion (DIA) to Caa2 from Caa1.
The decision was based on DIA's recent refinancing, which the agency believes has lowered the recovery prospects of bondholders.
"Although the new credit facilities have improved short-term liquidity, the success of the company's capital increase will be key to stabilise its liquidity profile and credit quality at sustainable levels," explained Vincent Gusdorf, a Moody's vice-president, senior analyst and lead analyst for DIA.
The grocer's senior unsecured medium-term note program rating has also been downgraded to (P)Caa2 from (P)Caa1.
Review
Moody's has extended the review for downgrade on the ratings as well as DIA's Caa1 corporate family rating (CFR), and Caa1-PD probability of default rating(PD).
The review will depend on a number of factors including DIA's ability to obtain shareholder approval for launching a capital increase, and gaining LetterOne's support for the transaction.
It will also take into account short-term and medium-term liquidity sources and the outcome of future negotiations with banks, especially regarding bondholders' recovery prospects.
Lastly, it will also consider the grocer's ability to strengthen its governance.
Capital Increase
On 12 December 2018, DIA entered into a standby underwriting commitment with Morgan Stanley & Co. International plc, for an amount of €600 million.
The underwriting is subject to conditions, which according to Moody's might create some uncertainties because of the company's deteriorating market share in Spain and its weak governance.
The implementation of the capital increase requires the approval of at least 50% of the company's shareholders, and the support from investment fund LetterOne, which owns 29% of DIA's shares.
The rating agency believes that successful implementation of the €600 million capital increase is necessary to stabilise DIA's liquidity profile and credit quality.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Dayeeta Das. Click subscribe to sign up to ESM: The European Supermarket Magazine
