Research Update: Marks&Spencer Downgraded To ?BB+?; On Watch Negative On Decline In Nonfood Sales Amid COVID-19 Uncertainties

We see significant downside risks to U.K.-based Marks&Spencer (M&S or the group) from COVID-19 related restrictions and social distancing measures. These will materially reduce sales in its clothing and home division, only partially mitigated by online sales and the anticipated resilience of the food segment. Although M&S will not make the final dividend payment and plans to cut costs and investments to preserve cash, a steep decline in sales, earnings, and cash generation will weaken the group's credit metrics considerably. We are therefore downgrading M&S and its senior unsecured debt to 'BB+' from 'BBB-' and putting all ratings on CreditWatch with negative implications. We are also assigning a '3' recovery rating to its senior unsecured debt, indicating our

...- We see significant downside risks to U.K.-based Marks & Spencer (M&S or the group) from COVID-19 related restrictions and social distancing measures. These will materially reduce sales in its clothing and home division, only partially mitigated by online sales and the anticipated resilience of the food segment. - Although M&S will not make the final dividend payment and plans to cut costs and investments to preserve cash, a steep decline in sales, earnings, and cash generation will weaken the group's credit metrics considerably. - We are therefore downgrading M&S and its senior unsecured debt to '##+' from '###-' and putting all ratings on CreditWatch with negative implications. We are also assigning a '3' recovery rating to its senior unsecured debt, indicating our expectation of meaningful (50%-70%; rounded estimate: 65%) recovery to creditors in the event of a payment default. We apply an unsecured debt rating cap at '3' due to the unsecured nature of the rated debt and uncertainty...

Research Update