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Moody's appends "limited default" to House of Fraser rating

Lauretta Roberts
31 July 2018

Credit rating agency Moody's has today appended a "limited default" (LD) to House of Fraser's existing Probability of Default Rating (Caa2-PD) meaning the department store is considered to be in technical default of its loans.

The announcement heaps pressure on the embattled department store which is urgently seeking funding of around £50m to keep the business afloat, after an expected injection of £70m in cash from Chinese investor C.banner was delayed and may not be forthcoming until October.

C.banner, which also owns UK toy retailer Hamley's, had been due to acquire a 51% stake in House of Fraser from fellow Chinese group Sanpower, as part of a CVA process, which was agreed to by creditors last month despite strong resistance from landlords.

Last week the retailer secured the right, via a court order, to add £50m more in senior debt and extended the deadline for repayment of a number of loans. The repayment of £225m of debt (in the form of a loan and a revolving credit facility) has been extended by a year while the repayment of a further £165m of bonds has been extended by a month meaning that all now mature in October 2020.

The move has meant that Moody's has further downgraded House of Fraser's standing having already graded the retailer's outlook as "negative". The "LD" designation will be removed after three business days.

It has emerged that Sports Direct owner Mike Ashley had been in talks with House of Fraser's banker Rothschild to discuss the possibility of taking an equity stake or loaning the business £50m. Ashley already holds an 11% in House of Fraser and had previously tried to buy it in 2014 when it was eventually sold to Sanpower.

Other investment options are apparently being discussed but the need for an urgent resolution becomes ever more pressing as the business is understood to need money to meet its quarterly rent bills, secure new stock in the run-up to Christmas and pay down a short-term overdraft. Suppliers, however, are approaching with caution as there is a high risk of stock not being fully paid for if the business does fall into administration.

Under the terms of the CVA, House of Fraser intends to close 31 of its 59 stores, leading to 6,000 job losses. Should the business collapse, 17,000 jobs will be placed at risk.

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