// Morrisons earnings only covered half of its £375m interest bill last year
// Moody’s believes Morrisons’ profits will not cover its interest payments in full over the next two years
Morrisons’s earnings covered only half of its £375m interest bill on its £6bn debt pile last year.
The grocer will have to pay off an estimated £795m in interest over the next two years, according to The Times.
US private equity firm Clayton, Dubilier & Rice saddled Morrisons with a substantial debt burden when it bought the supermarket in 2021 in a leveraged buyout.
Analysts at credit agency Moody’s downgraded Morrisons credit rating earlier this week as it said it’s ability to repay its debts had changed from stable to negative in the face of falling sales.
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Moody’s calculated that its free cashflow of £143m was wiped out by its £375m interest payment and a lease interest of £57m.
However, it did think the supermarket’s cashflow could turn positive again over the next two years as it grows sales following its McColl’s acquisition.
The grocer has looked to protect itself from rising interest rates by fixing or hedging 75% of its debt. However, Moody’s believes Morrisons’ profits will not cover its interest payments over the next two years in full.
Moody’s also flagged that Morrisons’ ownership structure carried “high governance risks” because of Clayton, Dubilier & Rice’s “history of employing aggressive financial policies”.
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