Downgraded M&S to issue ‘junk’ bond after posting big loss

Former darling of the high street, Marks & Spencer, has announced that it will issue its first ‘junk’ bond after credit ratings agencies downgraded its debt from investment grade to junk status.

The company recently reported a loss of £87.6million in the six months to September 26, compared with profits of £158.8million in the same period last year; this is the company’s first loss since joining the stock market in 1926.

Revenues fell almost 16% to £4.1billion as sales in its clothing and home division collapsed 40%; this is a dramatic reverse for a company which in 1998 became the first retailer to turn a profit of more than £1billion and yet another major blow to the high street.

Standard & Poor’s and Moody’s cut M&S’s credit rating to BB+, one level below investment grade, in March, and Fitch followed suit in April.

M&S has already axed close to 8,000 jobs in the pandemic and plans to shut 110 stores; it faces paying a higher interest rate to raise the money it is seeking through the sale of its bonds just over a year after the retailer was relegated from the FTSE 100 for the first time since the index was created 1984.

Retail expert Richard Hyman told consumer finance portal This is Money: ‘It really says something that M&S is issuing a junk bond, a milestone you’d like to avoid.

‘M&S wasn’t just Britain’s best retailer, it was Britain’s best company, but the bar has been progressively lowered with M&S and its expectations. M&S totally dominated the UK clothing market and they don’t anymore.’

The announcement of M&S’ cash raise comes as debt markets have been buoyed by the positive vaccine news and the company described the bond sale as part of M&S’s ‘regular treasury management’, adding that it has ample cash to invest in turning the business around.

Its half-year results did, however, contain some positive news in the early success of its joint venture with Ocado, which continued to offer rapid growth as grocery shopping increasingly shifted online.

Revenues for M&S’s food business were three times that of its department stores, representing a shift away from clothing to supermarkets and cafes; its online sales grew by more than a third, making M&S the second-biggest online clothes seller.

In a generally rising tide since Pfizer announced positive results from its vaccine trials, M&S shares have risen around 22%; technology is seen as playing a crucial role in its turnaround as it prepares for its first ‘digital Christmas’, with a target of 40% of its sales to be online within three years.