Ratings agency Moody's cut Morrisons' credit rating by two notches to Ba1 on Monday, placing the UK supermarket operator firmly in junk territory following its acquisition by Clayton Dubilier & Rice.
Morrisons' rating was downgraded from Baa2 and remains on review, with Moody's analysts saying it could be downgraded further by "several notches" depending on the ultimate structure and funding mix of CD&R's acquisition financing and the potential increase in leverage.
"Today's downgrade to Ba1, with continuing review, does not reflect the final financing structure for the acquisition but reflects a view that post-acquisition, Morrisons' rating will be no higher than Ba1," wrote analysts.
Some market players have said that Morrisons could become a Single B credit.
Morrisons launched a tender offer in October for £1.1bn of its investment-grade bonds due 2023, 2026, 2029 and 2031. Around £264m of those bonds remain outstanding, according to Moody's.
The sale of the highly anticipated £6.6bn leveraged financing backing Morrisons' buyout was recently shelved until 2022, forcing the lead banks to sit tight on the underwriting risk.
The financing package backing CD&R's £9.7bn buyout had been pre-marketed to investors towards the end of November, but general syndication is on hold until 2022.