S&P pushes more US retailers deeper into junk
18% of retailers’ debt now rated ‘CCC’ or lower
Nearly one in five US retailers are now rated in deep junk territory by S&P — double that of the start of the year, as bankruptcies like Toys R Us have amplified concern over the industry in recent months.
About 18 per cent of US retailers’ debt is rated in the ‘CCC’ or lower category by rating agency S&P Global, with the agency in a new report listing “difficulty adapting to online retail” and “shifting consumer tastes” as the reasons behind the distress.
The S&P report comes after Toys R Us filed for bankruptcy last month, rattling the industry and raising questions about who is next. S&P warned that “the risk of further defaults and downgrades for retailers is high”, noting that Toys R Us “adds stress to an already distressed retail sector”.
About 21 per cent of retail and restaurant companies are now on S&P’s “distressed” list, making it the most distressed US sector. Telecommunications was second, with 15.5 per cent.
“Even a year ago, oil and gas companies dominated the distressed list,” says Dianne Vazza, analyst with S&P. “The big difference is oil and gas was clearly triggered by lows in commodity prices, and that was going to eventually steady in some way. But the retailing environment is not going to go back . . . these are permanent changes.”
The rise of online shopping has ravaged many traditional retailers, leading to an uptick in bankruptcies this year, particularly among companies which took on large debts in the years leading up to the 2008 financial crisis.
Before Toys R Us, more than 20 US retailers had already filed for bankruptcy in the first half of the year, compared with 18 for all of 2016. The bankruptcies included companies like Gymboree, Payless and Aerosoles — with the accumulated liabilities of all retailers that filed for bankruptcy rising to over $5bn in aggregate, according to accountancy firm BDO.