• Matalan downgraded from ‘weak’ to ‘vulnerable’
  • S&P concerned about Matalan’s debt following profit fall
  • Matalan’s capital structure may become unsustainable

 Ratings agency Standard & Poor’s has downgraded value clothing and homewares retailer Matalan’s risk profile from weak to vulnerable.

The scale of Matalan’s debt amid falling profits promoted the downgrade, The Telegraph reported.

S&P’s decision came after Matalan posted a fall in second-quarter earnings of 90% after being hit by problems at its warehouse in Knowsley, Liverpool.

Matalan’s quarterly profits slide to £2.3m from £21.9m the previous year means that the retailer could face problems with excessive borrowings, according to S&P.

According to the newspaper, S&P said: “We are revising our assessment of Matalan’s risk profile to ’vulnerable’ from ’weak’ and its management and governance practices to ‘weak’ from ‘fair’.

“We consider that Matalan faces a risk of its capital structure becoming unsustainable over the long term if the company is not on track to overcome the operational setbacks and restore its earnings to historical levels in the next 12 to 24 months.”

Matalan has shouldered significant debt since founder John Hargreaves undertook a bond refinancing in 2010 in order to take a £250m dividend.

Matalan now carries debts of about £500m.