November 28, 2021

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Marks & Spencer joins growing list of UK companies considered ‘scrap’ investments

Marks & Spencer joins growing list of UK companies considered ‘scrap’ investments
The number of “fallen angels” – formerly creditworthy companies now deemed a risky prospect for lenders – could hit a record this year, with Marks & Spencer the latest UK firm to be given the unwanted “junk” status. The credit rating agency S&P has stripped 24 companies of investment grade status so far in 2020…

The variety of “fallen angels”– formerly creditworthy companies now deemed a risky prospect for lenders– could strike a record this year, with Marks & Spencer the latest UK company to be given the unwanted “junk” status.

The credit rating firm S&P has stripped 24 companies of financial investment grade status up until now in 2020 as the Covid-19 crisis bites, meaning they are now considered as only speculative punts rather than top-quality investments.

The firm now considers a record 111 business to be at threat of suffering the exact same fate, including British Airways, the style chain Next, Virgin Cash and ITV.

Credit rankings are an assessment of how likely a business is to be able to repay its debts, supplying bond financiers with signals about whether to provide to them, and how much they need to charge to do so.

Financial investment grade bonds are considered a decent possibility and carry a score ranging from BBB- at the lower end of S&P’s scale all the method approximately AAA for gold-plated business thought about to present no danger at all for lending institutions.

Anything listed below that, from BB down to D– for companies that are in default on their loans, is considered a speculative or junk bond. Bond investors are at greater risk of not getting their refund from such loans, so charge greater rates of interest, making it more pricey for companies with a scrap debt score to borrow.

Marks & Spencer is among the fallen angels likely to face greater borrowing costs after S&P cut its bonds to junk status on 26 March, leaving the seller with a credit rating of BB on $2bn (₤ 1.65 bn) of debt.

At the time, the firm said it anticipated the coronavirus pandemic to result in significantly lower sales for M&S’s clothes and house divisions, which it did not think might be totally offset by food and online sales. It likewise cautioned that the merchant’s ranking could be cut even more if the impact of the pandemic remains on.

Other fallen angels from worldwide consist of the carmakers Ford and Renault, Royal Caribbean Cruises and the United States airline Delta.

S&P said the amount of debt owed by these companies had actually reached $300 bn, the greatest level considering that 2015 when the figure struck $1tn due to the travails of two giant state oil and gas firms, Russia’s Gazprom and Petrobras of Brazil.

A variety of UK companies have actually likewise been contributed to S&P’s list of business at risk of a downgrade that would see them join the ranks of the fallen angels.

They include British Airways, which has stated it might cut 12,000 jobs as part of a major restructuring effort focused on conserving costs, as airlines battle with the big financial implications of a prolonged drop-off in air travel.

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S&P likewise called ITV among its list of prospective fallen angels, in the middle of a slump in marketing incomes throughout lockdown.

Other UK companies to feature on the list of at-risk companies are the engineer GKN, Virgin Cash, the B&Q owner Kingfisher and the industrial equipment rental firm Ashtead.

Banks comprise the majority of these companies globally, followed by leisure and hotels, with the oil and gas sector 3rd on the list.

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