Moody’s downgrades Edcon, notes

Moody's Investors Service said it downgraded Edcon Holdings Ltd.’s corporate family rating to Caa3 from Caa1 and probability of default rating to Ca-PD/LD from Caa1-PD.

The limited default "LD" designation appended to Edcon's probability of default rating reflects that the missed interest payment constitutes a default under Moody's definition. The limited default designation will remain until the company resolves the missed payment.

Furthermore, the agency downgraded Edcon Ltd.’s senior secured notes (totaling €617 million and $250 million) due 2018 and the senior secured payment in kind (PIK) toggle notes (€36.2 million) due 2019 to Ca (LGD4) from Caa2 (LGD4), the super senior secured PIK notes (totaling €116.4 million) due 2019 to Caa2 (LGD3) from Caa1 (LGD3).

The outlook on all ratings is stable.

Moody’s said the Caa3 corporate family rating captures the uncertainty created around the long-term sustainability of the capital structure following Edcon's decision to not pay the coupon on the senior secured notes and to seek to defer the coupon payments to December 2016. The decision to defer its 2016 coupon payments on the senior secured notes and term loans occurs at a time when the South African economic and consumer environments are challenging which is putting pressure on Edcon's performance and its ability to meet its near term seasonal working capital requirements and interest payments.

The agency recognizes that the coupon deferral will benefit Edcon's liquidity position up to ZAR 1.6 billion for 2016 giving it the financial flexibility to support its strategic initiatives, however, this is not a long term solution and the capital structure is likely to be revisited at some stage.

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