Morrisons £5.6m private equity debt likely to see prices rise

Morrisons has been struggling due to the £5.6 million debt brought about by its private equity takeover, a credit agency has warned, with prices likely to rise as a result.

Fitch gave the Big 4 grocer a “speculative” debt rating, indicating “an elevated vulnerability to default risk”. The agency’s rival Moody’s also gave a similar warning.

According to Fitch, the rating would have been lower if weren’t for Morrison’s strong management team and profitability.

The debt comes as Morrisons was acquired by New York-based private equity house Clayton, Dubilier & Rice in October for £7 billion.

However, the deal came with £5.6 million of debt passed on to the grocer, raising concerns that Morrisons will have to increase its food prices.

READ MORE: Morrisons appoints Joanna Goff as new CFO

As a result, the low credit rating is likely to affect the supermarket’s future refinancing and borrowing prospects.

Similarly, Asda has also fallen in a debt-burdened private equity takeover resulting in the grocer failing to compete with product deals.

Data from Kantar has revealed that both Morrisons and Asda have begun losing market share due to fears private equity barons will not make good stewards.

Both retailers have been accused of raising prices more than rivals and have seen sales fall further than other grocers.

This has seen discounters rapidly growing and gaining customer popularity with Aldi being named the nation’s “favourite supermarket”.

“We think the business is robust, the stores are well developed and invested,” Fitch analyst Sophie Coutaux said.

“But to offset this, the leverage is very high for the rating… even incompatible with the rating.”

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