Scandal stings Boparan as credit rating takes hit

Moody’s has downgraded Boparan Holding Limited’s credit rating, warning the food giant’s ability to pay for short-term obligations could “weaken”. 

If Boparan fails to improve profitability in the next 12 months, it could experience risks to refinancing at a time when Moody’s said there were “limited” chances of a big recovery in financial performance next year. 

Measures to improve quality control following the hygiene failings uncovered at the 2 Sisters plant in West Bromwich will also add extra pressure to the company’s already thin margins.

And this gloomy outlook has promoted credit rating agency Moody’s to downgrade Boparan’s credit rating from B2 to B3.

“The downgrade of Boparan’s ratings to B3 with a negative outlook is driven by the lower EBITDA in the last fiscal year 2016-17 as well as limited prospects of a material recovery in the next 12 months, which would result in a sustained high financial leverage, thin margins and weak-to-slightly-negative free cash flow generation,” said Eric Kang, a Moody’s credit analyst.

“There could also be refinancing risk with respect to the £250 million senior notes due in July 2019 if operating performance and credit metrics do not improve.”

Boparan is believed to be taking a number of options to improve profitability and cash flow generation, including price increases and efficiency savings. However, Moody’s said these plans were a danger to “execution risk”, as unforeseen operation issues, like the hygiene sting, could undermine these efforts.

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