New York, April 4--Credit quality in the retail sector is likely to remain negative for the rest of the year, as mergers and acquisitions and other strategic decisions companies make weigh on their ratings, Standard & Poor's said.
S&P placed eleven U.S. retailers on review for downgrade during February and March, meaning the credit ratings of those stores are likely to be cut soon.
Based on consistent consumer spending levels and a fairly solid economy, changes in credit quality should be much more balanced or even positive, S&P said in a recent report. But moves by retailers to enhance shareholder value and other efforts are more apt to drive rating activity.
"Credit trends will likely continue to be affected more so by discretionary strategic and financial policy decisions than by the economy," S&P said.
For instance, in a separate report, S&P said J.C. Penney Co.'s credit quality would likely deteriorate if it were to sell itself to a private equity firm, as reports suggested is possible, but otherwise the company is on track to be upgraded to investment-grade status. J.C. Penney on Thursday declined to comment on what it characterized as rumors.
In an effort to boost shareholder value, some companies are exploring options including putting themselves up for sale or creating divisions between their brands.
Neiman Marcus, the "BBB" rated-operater of its namesake stores and the Bergdorf Goodman chain, is looking for a buyer. Also, Saks Inc., the "BB" rated-retailer, is considering a split between its high-end stores and moderately priced stores. Both companies are on a possible downgrade list.
Credit ratings in the retail sector are heavily tilted to the non-investment grade category, with 69 percent of the sector's companies rated junk by S&P.
