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S&P takes a bite out of Big Food

Heather Tomlinson
Sunday 09 February 2003 01:00 GMT
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Ratings agency Standard & Poor's has downgraded the debt of the Big Food Group, which owns the struggling supermarket chain Iceland.

The news comes as another blow to bondholders of the company, who took up £150m of debt in June and were shocked by a profits warning just six weeks later. Some holders explored the possibility of legal action but no viable legal routes were available.

The S&P move follows the Christmas trading statement, which showed that sales at Iceland continued to fall, albeit at a lesser rate than earlier in the year. In the third quarter to the end of December, Iceland's sales were down 3.6 per cent. "The downgrade reflects Big Food's weakened business profile, primarily due to the continuing underperformance of Iceland, the group's retail division," said Standard & Poor's credit analyst Omar Saeed.

Sales at Booker, the cash-and-carry business, also fell by 2.8 per cent. This division of Big Food had strengthened the company through a difficult period and the turnaround was a surprise. "They are both doing badly now," said Jonathan Pitkanen, an analyst at Fitch ratings agency. "I can't see any improvement."

S&P downgraded the bonds to B+ and the corporate credit rating was lowered to BB. Mr Saeed said that the liquidity was "adequate" and that Big Food was comfortable in its banking covenants. The average net debt was £270m in the third quarter.

A spokesperson for Big Food pointed out that a new store format, completed at 30 stores, was producing sales increases of more than 10 per cent. He added that the Christmas sales figures had been better than expected, and that there was enough capital to finance the rollout of the new format to the other 800 stores.

The new format has a broader range, more fresh and chilled foods and a "lighter, brighter, more enticing" environment.

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