Credit rating agency Moody’s has downgraded its outlook on Tesco to negative over concerns about levels of debt in the business.
Moody’s said that it had downgraded the retailer from stable, reflecting it’s view that “the company will find it more challenging to achieve credit metrics”.
It said that while Tesco’s operational performance “has displayed some resilience to the ongoing recession” the grocer’s debt protection ratios “have suffered from the volatile capital markets and a material increase in operating lease commitments beyond our expectations”.
Moody’s acknowledged the grocer’s commitment to reducing debt but said that the de-leveraging process will be “more difficult to achieve in the present difficult environment”.
The agency said that ratings would be adjusted downwards if the grocer were to “fail to implement further corrective actions in order to restore its credit metrics towards our targets”.
However, the ratings could remain at current levels or move back to stable “if there were evidence of a sustainable recovery in metric”, Moody’s added.