S&P downgrades Future Retail's issuer credit rating on debt recast

The rating agency might look at an upgrade after liquidity review

Global rating agency Standard & Poor's has downgraded Future Retail Ltd's long term rating issuer credit rating from "CCC-" to "SD", amounting to default. The rating action follows restructuring of onshore debt.

India-based Future Retail has completed the one-time restructuring of its onshore debt (about Rs 10,200 crore) that includes extending the maturity of its term loans and other borrowings.

The restructuring constitutes a distressed exchange. It is tantamount to a default as the likelihood of a conventional default in the absence of this transaction was high and there is inadequate offsetting compensation for lenders, S&P said in a statement.

It expects to raise issuer credit rating on Future Retail in the coming days, most likely to the 'CCC' category, after re-evaluating the company's liquidity position post restructuring, the rating agency added. The review will also focus on the viability of its capital structure.

The rating on the company's US dollar-denominated senior secured notes remains unchanged at 'CCC-' as of now since it has been regularly servicing the semi-annual coupon on the notes.

The restructuring has been approved under the resolution framework for Covid-related stress provided by the Reserve Bank of India.

Future Retail's liquidity position has weakened materially since March 2020, exacerbated by the strict lockdown imposed in India to contain the spread of Coronavirus (Covid-19). The company's operating cash flows remain depressed, given a near 70 per cent decline in sales.

Future Retail's existing long-term debt obligations (term loans and non-convertible debentures) will be extended from their original schedule by 18-24 months at existing interest rates. The term loans will now be repayable starting December 2021 and the non-convertible debentures will be repayable on June 30, 2025.

Overdues under its short-term working capital borrowings (including interest) will also be converted into working capital term loans and funded interest term loans to be repaid from December 2021. The company will have no interest and principal payments due on the restructured debt until September 2021, it added.