Another blow for Steinhoff as Moody's wields downgrade axe

Ratings agency Moody's on Thursday again downgraded the ratings of embattled global furniture retailer Steinhoff.

Moody's downgraded Steinhoff International Holdings NV and Steinhoff Investment Holdings.

The ratings agency has assigned a Caa1 Corporate Family Rating to the two companies, and a B3.za national scale Corporate Family Rating to Steinhoff Investment Holdings.

Caa1 is the seventh rung of non-investment grade, which indicates high credit risk.

Corporate family ratings, according to Moody's, are an "opinion of a corporate family's ability to honour all of its financial obligations and is assigned to a corporate family as if it had a single class of debt and a single consolidated legal entity structure".

Steinhoff, which is registered in Amsterdam, owns about 40 different brands in some 30 countries.   

READ: A Steinhoff guide for dummies

At the same time, Moody's said it has downgraded the backed senior unsecured notes rating of Steinhoff Europe AG to Caa1 from B1.

It has also assigned a Caa1-PD probability of default ratings (PDR) to Steinhoff and Steinhoff Investment Holdings.

The ratings agency added that, in line with its practice for corporates with non-investment grade ratings, it withdrew the B1 issuer rating it had previously assigned to Steinhoff and the B1/Baa3.za issuer ratings assigned to Steinhoff Investment Holdings.

All these ratings remain under review for further downgrade.

Thursday's ratings action was the second time this month that Moody's downgraded the global furniture and household goods retailer. On December 7, a day after its share price commenced a steep fall, Moody's lowered its credit rating four notches from Baa3 - the last rung of investment grade - to B1, the fourth level of non-investment grade.  

Moody's said its latest rating decisions recognise the financial flexibility offered by Steinhoff's listed investments and its "predominantly unencumbered European property portfolio spanning retail, warehousing and manufacturing".

However, in its view Steinhoff may not be able to monetise these assets in a timely manner under current circumstances.

Steinhoff's share price has dropped over 90% this month, after its CEO Markus Jooste abruptly resigned and it announced that PwC was investigating “accounting irregularities requiring further investigation” in its books. 

The Stellenbosch-headquartered group’s 2017 audited results are on hold, and it has warned investors not to rely on the figures contained in its 2016 results. 

READ: Steinhoff on brink of dropping off JSE's top 100 company list

Moody's added its assessment of Steinhoff's credit profile is made difficult by the group's complex corporate legal structure and financial reporting considerations, the result of the company's rapid expansion through acquisition.