NEW YORK, Nov 3 (Reuters) - Fairway Group Holdings Corp was downgraded to a low junk grade by Standard & Poor‘s, which said the operator of Fairway supermarkets may need to restructure its debt or raise capital as increased competition contributes to its “persistent underperformance.”
S&P on Tuesday cut Fairway’s corporate credit rating one notch to “CCC-plus” from “B-minus” with a “negative” outlook, saying competition from Whole Foods Markets Inc and online retailers will pressure credit metrics and cash flow generation into next year.
Credit analyst Diya Iyer said New York-based Fairway must fundamentally change its “unsustainable” capital structure to operate effectively.
She said there is a “low” likelihood of improvement in its capital structure absent a successful debt restructuring, and said that Fairway may need to obtain covenant waivers under its lending facilities.
Fairway did not immediately respond to a request for comment.
Since going public at $13 per share in April 2013, Fairway has seen its share price fall more than 90 percent.
Disappointing results, including a $12 million loss in its latest quarter, and a sizable debt load have led the company to back away from its goal of opening some 300 stores.
Fairway operates 15 stores in the New York area. On an Oct. 29 conference call, Chief Executive Jack Murphy said the company plans to “flood the boroughs with Fairways,” rather than be “off running around to Boston, and Philadelphia, and Washington, D.C.”
In late afternoon trading on the Nasdaq, Fairway was down 3 cents at $1.15. (Reporting by Jonathan Stempel in New York; Editing by Jonathan Oatis)