S&P downgrades Future Retail to ‘SD’ on restructuring of debt

The term loans will now be repayable starting December 2021 and the non-convertible debentures will be repayable on June 30, 2025.

Rating agency S&P has downgraded Future Retail’s long-term rating issuer credit rating to ‘SD’ (selective default) from ‘CCC-’ . The rating action came after Future Retail announced the implementation of a one-time restructuring plan by lenders on debt aggregating about Rs 10,200 crore.

The rating agency sees the restructuring as distressed and tantamount to default because the original terms of the loans have been changed without adequate offsetting compensation.

“The debt will be repaid later than originally promised and there is no additional collateral, amendment fee, or higher interest rates on the rescheduled payments,” S&P said. Moreover, the likelihood of a conventional default in the absence of this transaction is high owing to the company’s weak liquidity and subdued operating performance, the agency said.

It said Future Retail’s liquidity position has weakened materially since March 2020, exacerbated by the strict lockdown imposed in India. The company’s operating cash flows remain depressed, given a near 70% decline in sales.

S&P said it also plans to re-evaluate issuer credit rating on Future Retail in the coming days after the restructuring, and is likely to raise the rating to the ‘CCC’ category. The review will focus on the viability of its capital structure and liquidity position.

S&P has, however, kept the issue rating on Future Retail’s $500-million senior secured notes unchanged at ‘CCC-’ because as of now, the company has been regularly servicing the semi-annual coupon on the notes.

Future Retail’s restructuring has been approved as per the resolution framework for Covid-19-related stress provided by the Reserve Bank of India. Its existing long-term debt obligations will be extended from their original schedule by 18-24 months at existing interest rates. The term loans will now be repayable starting December 2021 and the non-convertible debentures will be repayable on June 30, 2025.

Future Retail had reported a consolidated net loss of Rs 847 crore during the December quarter (Q3FY21). Its revenue from operations was down 71% to Rs 1,507 crore.