Marks & Spencer will issue its first ‘junk’ bond in a dramatic sign of how far the high street stalwart has fallen.
Credit rating agencies downgraded its debt earlier this year from investment grade to junk status. But it has not been back to the debt markets to raise cash since then – until now.
M&S faces paying a higher interest rate to raise the money it is seeking through the sale of its bonds – a major reversal of fortunes for a company which in 1998 became the first retailer to turn a profit of more than £1billion.
Marks & Spencer became a so-called ‘fallen angel’ when credit rating agencies downgraded its debt earlier this year from investment grade to junk status
Last week it reported a loss of £87.6million in the six months to September 26, its first loss since joining the stock market in 1926. It made profits of £158.8million in the same period last year.
Revenues fell 15.8 per cent to £4.1billion as sales in its clothing and home division collapsed 40.1 per cent, far outweighing a 2.7 per cent rise in sales in its supermarkets.
It has already axed close to 8,000 jobs in the pandemic and plans to shut 110 stores.
The new bond comes 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 said: ‘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 any more.’
Three other ‘junk’ companies have also sought to raise money this week, as the debt markets have been buoyed by the positive vaccine news.
Standard & Poor’s and Moody’s cut M&S’s credit rating to BB+, one level below investment grade, in March, with Fitch following suit in April.
Insiders said the bond sale was part of M&S’s ‘regular part of treasury management’, and that it has ample cash to invest in turning the business around.
In its half-year results investors were buoyed by the early success of its joint venture with Ocado, which continued to offer rapid growth as families bought more groceries online.
M&S’s food business brought in three times as much as its department stores, marking a long-term sales shift away from clothing to supermarkets and cafes.
Online sales grew by more than a third, meaning M&S is the second-biggest online clothes seller by market share.
Bosses tried to focus attention on attempts to turn the business round. It is investing in its Castle Donington warehouse in preparation for the first ‘digital Christmas’, and expects 40 per cent of its sales to be online within three years.
Yesterday, it announced it will roll out mobile checkout technology so shoppers can scan items and pay with their smartphone.
The share price has risen 22.6 per cent since Pfizer announced positive results from its vaccine trials.