Standard & Poor’s downgraded its corporate credit rating on Sears Holdings Corp. to “CCC-minus” from “CCC.”
The outlook on the rating is negative.
S&P’s downgrade follows the disclosure by the troubled retailer that it is in discussions with lenders to restructure possibly more than $1 billion of its non-first-lien debt.
While no details were provided by Sears, S&P said, “[W]e will likely view an eventual transaction as distressed and tantamount to a default if completed.” S&P also concluded that the lowering of the debt rating was warranted since it believes lenders “would receive less than the original promise.”
S&P said the retailer would likely execute a distressed debt transaction in the next 12 months. It also noted that the potential transactions could include a reduction in the cash interest payment, as well as the extension on some of its debt maturities.
Sears earlier this month disclosed a new liquidity plan that includes $300 million in new financing. The retailer has raised $100 million and is in discussions for the balance.
Sears’ plan also includes cost reductions of $200 million on an annualized basis, separate from savings that would come from store closures. The company already said earlier this month it would shutter 103 Kmart and Sears locations, and that the store review was ongoing.
Christina Boni, a credit analyst at Moody’s Investors Service, a competing ratings agency, noted on Jan. 10 that even though the department store sector had “brighter sales” this past holiday season, Sears’ comparable sales decline shows it has continued to “significantly underperform” its peers.
Sears’ equity investors took the downgrade in stride, pushing shares of the retailer up 3.1 percent to $3.62 in midday trading, still leaving it with a market capitalization of just $388.5 million.