Research Update: Dutch Retailer Hema B.V. Downgraded To 'CCC' On Rising Refinancing Risks, Possible Debt Restructuring; Outlook Negative

Dutch retailer Hema B.V. has announced a later redemption of its payment-in-kind (PIK) notes in accordance with its maturity in June 2020, while we were expecting repayment already this year. Although Hema's recent earnings were in line with our expectations, free operating cash flow (FOCF) generation remained somewhat negative in the first nine months of fiscal 2019 and bonds traded below par, which we believe increases the refinancing risk of the PIK notes at maturity in June 2020 and the possibility of a debt restructuring. We are therefore lowering our long-term issuer credit and issue ratings on Hema and its senior secured notes to 'CCC' from 'B-', our ratings on the super senior secured revolving credit facility (RCF) to 'B-'

...- Dutch retailer Hema B.V. has announced a later redemption of its payment-in-kind (PIK) notes in accordance with its maturity in June 2020, while we were expecting repayment already this year. - Although Hema's recent earnings were in line with our expectations, free operating cash flow (FOCF) generation remained somewhat negative in the first nine months of fiscal 2019 and bonds traded below par, which we believe increases the refinancing risk of the PIK notes at maturity in June 2020 and the possibility of a debt restructuring. - We are therefore lowering our long-term issuer credit and issue ratings on Hema and its senior secured notes to '###' from 'B-', our ratings on the super senior secured revolving credit facility (RCF) to 'B-' from 'B+', and our ratings on the senior unsecured notes to '##' from '###'. - The negative outlook reflects the possibility that a distressed restructuring transaction could become even more likely and the risk that the PIK notes may not be redeemed according...

Research Update