Updated 4:17 p.m. Tuesday Dec. 12
The turmoil at Farfetch has caught up to its credit rating — again.
A week after Standard & Poor’s cut its rating on the luxury platform, Moody’s Investors Service followed suit on Tuesday, lowering its ranking two notices to “Caa2” from “B3,” and put the company on review for further downgrade.
“Caa” ratings are “judged to be speculative of poor standing and are subject to very high credit risk,” according to Moody’s scale.
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It has been a rough couple weeks for Farfetch — and more than the credit agencies are spooked.
It began on Nov. 28 with a report that José Neves, founder, chairman and chief executive officer, was working with J.P. Morgan to try to take the company private.
While the prospects of a buyout led to some initial stock bullishness, shares of Farfetch started to collapse when partner Compagnie Financière Richemont said it had no plans to invest in the company and was reviewing its deal to hand over control of Yoox Net-a-porter.
Shares of Farfetch fell 41 percent on Monday and were down another 14.2 percent to 63 cents on Tuesday, leaving the company with a market capitalization of just $247.7 million.
While credit rating agencies like Moody’s usually focus on a company’s debt position, the stock price matters mightily in Farfetch’s case.
Moody’s pinned its downgrade on two main factors:
- “The significant deterioration in Farfetch’s share price over the past year or more, which, in Moody’s opinion, will have a detrimental effect on the company’s ability to access capital markets to support its liquidity.”
- “And Moody’s view that the luxury clothing market is experiencing soft demand as consumers in various parts of the world have pared back on discretionary spending.”
Moody’s said it could downgrade Farfetch “several notches” if its review “concludes that dwindling liquidity is likely to result in a financial restructuring.” Similarly, S&P said it could also downgrade the company’s debts on “what we see as escalating risk of a liquidity crisis or an insolvency event, including debt restructuring.”
Farfetch declined to comment on Tuesday and has not addressed its situation publicly since it canceled its third-quarter earnings report last month and warned its prior financial forecasts could no longer be relied on.
The silence has been deafening — but there are signs of lots of activity behind the scenes.
Farfetch is said to be mulling a sale of its Browns retail business, which has caught the attention of distressed investor Mike Ashley, the founder of Frasers Group, who is sometimes referred to as “Grim Reaper” of the high street.
The company also has a number of other businesses, assets and partnerships in something of a limbo right now given the uncertainty.
In addition to the Yoox Net-a-porter deal — which was approved by regulators, but hasn’t closed — Farfetch has a partnership with Alibaba, which has shown signs of shifting. Last month, the Chinese e-com giant’s president, Mike Evans, resigned from Farfetch’s board. In a filing Farfetch made with the Securities and Exchange Commission, the departure was attributed to the “furtherance of the arm’s length commercial relationship between Alibaba … and the company.”
Farfetch also holds a $200 million stake in Neiman Marcus Group and owns Stadium Goods and New Guards Group, which makes Off-White product under license and owns Palm Angels and other brands.
It is also unclear what Farfetch’s troubles will ultimately mean for the boutiques and brands that sell on the platform or the companies, such as Ferragamo, that use its technology to power their own websites.