Kingfisher faces downgrade to junk credit rating

By Richard Barley

LONDON (Reuters) - Kingfisher's credit ratings came under pressure on Friday as Standard & Poor's said it might cut the company to "junk" status while Moody's Investors Service warned it was "too weak" for an investment-grade rating.

S&P said it might cut Kingfisher (KGF.L), Europe's biggest home improvements retailer, from BBB-, the lowest investment-grade rating, because the company had an "aggressive financial profile" and faced difficult trading conditions.

It said it would meet with Kingfisher's management to discuss plans to cut debt and boost growth, and said the rating could be cut if the group could not "demonstrate a clear path toward restoring its credit metrics".

Moody's, meanwhile, cut its outlook on Kingfisher's Baa3 rating -- also at the very bottom of investment grade -- to negative from stable and warned the company would be stung by a slowdown in British consumer spending.

On Thursday, Kingfisher slashed its dividend and capital-spending plans and said full-year pre-tax profit fell as it battled tough markets. The company said stabilising its debt at current levels and later reducing it was "now a priority".

Moody's said it recognised Kingfisher was taking action to revamp its stores and strengthen its market position, and the move to stabilise debt was positive.

"However, Moody's believes that the expected decline in UK consumer spending will weigh on Kingfisher's performance over the next 12 months, challenging the company's ability to improve its profitability and meet Moody's target ratios for maintaining a Baa3 rating," said Moody's analyst Yasmina Serghini.

"Kingfisher displays credit metrics which Moody's considers to be too weak for an investment-grade rating," the agency said in a statement.