By Marc Jones
LONDON (Reuters) - British supermarket chain Morrisons could see its credit rating cut by "multiple notches" if a proposed 6.3 billion pound ($8.7 billion) private equity buyout of the firm goes ahead, Moody's has warned.
Moody's gave the warning as it put Morrisons' investment-grade Baa2 rating on a review for a downgrade. It said it reflected a view that Morrisons' leverage was likely to jump if the takeover by a trio of investment firms led by SoftBank-owned Fortress goes ahead.
"Morrisons' ratings could be downgraded by multiple notches," Roberto Pozzi, Moody's lead rating analyst for the supermarket said on Wednesday.
The deal was likely to lead to "a deterioration of Morrisons' key debt metrics and to less conservative financial policies," he said.
Moody's estimates the supermarket's adjusted gross leverage was 4.8x at the end of January, up from 2.8x at the end of the previous fiscal year, meaning it is already "weakly positioned" in the Baa2 rating category. Gross debt is calculated by Moody's to be 3.4 billion pounds.
A multi-notch downgrade would mean the rating would drop out of investment grade into the 'junk' bracket, a move likely to push up borrowing costs.
Moody's added that Morrisons bonds currently benefit from "change of control language" which give investors the right to put the bonds at par plus accrued interest if there is a rating downgrade as a result of the change of control.
($1 = 0.7260 pounds)
(Reporting by Marc Jones, editing by Sujata Rao and Nick Tattersall)