Standard & Poors Corp. lowered its corporate credit rating on Sears to ‘CCC-‘ from ‘CCC’ to reflect its view of “potential transactions as distressed because its believe lenders would receive less than the original promise.” The outlook is negative.
The downgrade follows Sears announcement that it is in discussions with its lenders regarding potential transactions that would modify the agreement terms of more than $1 billion of its non-first-lien debt. The company is seeking to enhance liquidity and strengthen the balance sheet, and the potential transactions would include reducing cash interest payment and extending on
some of its debt maturities. If completed, S&P said it would likely view these loan modifications as distressed and tantamount to a selective default because the lenders could receive less than par value and/or less than the original promise on the current debt.
“Our negative outlook on Sears reflects the possibility that the company could execute a distressed debt transaction in the next 12 months,” the rating agency wrote in a release. “We would lower the corporate credit rating and relevant issue-level ratings if the company reaches an agreement with its lenders and announces a restructuring transaction. Although unlikely, we could consider raising the rating if we believe a distressed debt transaction is unlikely over the next 12 months, operating performance recovers and is maintained, and liquidity seems sufficient for 2018 and beyond, including prospects for a refinancing of near term maturities at par. ”
