Supermarket Chain’s Debt Pile and Interest Rates Pressure

  • Morrisons faces £100m hit to borrowing costs amid market turmoil
  • Recent rises in interbank lending rates will increase annual interest expense by £35m to £335m
  • Debt pile of £6.6bn
  • Every 25 basis point rise in interest rates will increase annual interest by £7m to £8m
  • Bank of England expected to increase rates within six months, causing a £60m hit
  • Morrisons’ underlying profits halved in Q3 2022 to £177m
  • Bonds issued by Morrisons trading at 77p in the pound, indicating risky investment

Morrisons, the UK supermarket chain, is facing a significant financial challenge due to market turmoil. With over half of its longer-term debt at a floating rate and no interest hedging in place, recent rises in interbank lending rates are estimated by Moody’s to increase its annual interest expense by £35m to £335m. The company has a substantial debt pile of £6.6bn. Furthermore, every 25 basis point rise in interest rates will add another £7m to £8m to the annual interest. Economists predict that the Bank of England will increase rates from 2.25% to 4.25% within six months, resulting in a £60m hit. In Q3 2022, Morrisons’ underlying profits nearly halved to £177m. The Times reports that £1bn of bonds issued by the company are trading at 77p in the pound, suggesting it is viewed as a risky investment. This sudden increase in borrowing costs may complicate private equity giant Clayton, Dubilier and Rice’s (CD&R) efforts to sell and lease back Morrisons’ warehouses and food manufacturing sites.

Factuality Level: 8
Factuality Justification: The article provides accurate information about Morrisons’ financial situation and its potential impact on the company due to rising interest rates. It cites sources such as The Times and Moody’s ratings agency for its data and includes relevant details about the company’s debt and profitability.
Noise Level: 3
Noise Justification: The article provides relevant information about Morrisons’ financial situation and potential impact of rising interest rates on its borrowing costs. It also mentions the acquisition by private equity giant Clayton, Dubilier and Rice (CD&R) and the market’s view on the company’s bonds. However, it lacks in-depth analysis or exploration of long-term trends or consequences for those bearing risks.
Financial Relevance: Yes
Financial Markets Impacted: Morrisons, Bank of England interest rates, interbank lending rates, bond market
Financial Rating Justification: The article discusses the impact of rising borrowing costs on Morrisons, a supermarket chain, and how it affects their debt and potential sale of assets. It also mentions the expectations of Bank of England interest rate changes which impacts financial markets.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: Minor
Extreme Rating Justification: There is no extreme event mentioned in the text, but the financial situation of Morrisons is described as risky and facing increased borrowing costs due to market turmoil.

Reported publicly: www.retailsector.co.uk