S&P places Tesco's debt rating on credit-watch negative

Tesco’s warning that the company’s trading profit for the financial year ending February 2015 will not exceed £1.4bn will result in weaker credit metrics going forward, ratings agency Standard&Poor’s (S&P) said in a report issued on Wednesday.

Given the now substantially lower estimated profits, than previously expected by S&P, the agency has placed the company’s long-term and short-term debt ratings on so-called Credit Watch negative.

The above means that if the firm does not provide sufficient assurances that it will be able to “de-leverage substantially and in a timely manner” then a downgrade of the debt ratings might follow.

In fact, if the food retailer cannot improve its operating performance and profitability continues to decline then S&P could conceivably lower the debt rating by up to two notches.

Tesco is expected to provide “more details” about measures to strengthen the balance sheet on 8 January, following which the rating agency’s analysts will make a decision.