S&P Global Ratings expects Future Retail to default, lowers rating

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SME Times News Bureau | 26 Apr, 2022
Global credit rating agency S&P Global Ratings anticipating a certain default by Future Retail Ltd on its $500 million senior secured notes lowered the credit ratings from 'CCC-' to 'CC'.

"We lowered the rating on Future Retail's $500 million senior secured notes because we view default as a virtual certainty," S&P Global Rating said.

The issuer credit rating remains 'SD' given the continuing default on the onshore bank borrowings, the rating agency said.

According to S&P Global Ratings, the termination of the proposed sale of assets to Reliance Retail Ventures Ltd (RRVL) has magnified the risk of a default on the next coupon payment on the rated notes, and of the initiation of bankruptcy proceedings against the company.

"The risk of Future Retail missing the next coupon on the notes due on July 22, 2022, has increased significantly. Future Retail's liquidity position remains weak," the rating agency said.

Future Retail reported an EBITDA (earnings before interest, taxes, depreciation and amortization) loss of about Rs 10.5 billion over the nine-month period ending December 31, 2021, said S&P Global Ratings.

"We expect operating losses to increase further in view of store closures starting earlier this year when the company failed to service its lease obligations. In such a scenario, we expect the company's Rs 1 billion (about $13 million) of cash and cash equivalents as on September 30, 2021, to have eroded materially," said S&P Global Ratings.

The rating agency also said Future Retail also faces the risk of an accelerated repayment of its senior notes.

"Under the notes' covenants, principal and unpaid interest on the notes become automatically due and payable if any bankruptcy proceedings initiated against the company remain undismissed for 60 consecutive days, or if the company consents to the liquidation. Bank of India has already filed an application with the National Company Law Tribunal in this regard earlier this month," S&P Global Ratings said.