S&P Global Ratings has downgraded its long-term issuer credit rating on Future Retail to 'SD' from 'CCC-' after the company announced the implementation of a one-time restructuring plan by its onshore lenders on debt aggregating about Rs 10,200 crore.

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The rating agency sees the restructuring as distressed and tantamount to default because the original terms of the loans have been changed without adequate offsetting compensation.

"The debt will be repaid later than originally promised and there is no additional collateral, amendment fee, or higher interest rates on the rescheduled payments. Moreover, the likelihood of a conventional default in the absence of this transaction was high owing to the company's weak liquidity and subdued operating performance, in our opinion," S&P Global Ratings said.

The rating agency kept the issue rating on Future Retail's US$500 million senior secured notes at 'CCC-' because as of now, the company has been regularly servicing the semi-annual coupon on the notes.

The notes are not covered under the regulations of the restructuring scheme and the agency does not foresee any changes in the terms of the issuance.

"We plan to reevaluate our issuer credit rating on Future Retail in the coming days post restructuring and will likely raise our rating on the company to the 'CCC' category. Our review of the company will focus on the viability of its capital structure and liquidity position," it said.

Future Retail's restructuring has been approved as per the resolution framework for COVID-related stress provided by the Reserve Bank of India.

Since the beginning of the COVID-19 pandemic last year Future Retail's liquidity position has weakened materially since March 2020 due to the strict lockdown imposed by many states across the country. The company's operating cash flows remained down, given a near 70 per cent decline in sales.

Future Retail's existing long-term debt obligations (term loans and non-convertible debentures) will be extended from their original schedule by 18-24 months at existing interest rates. The term loans will now be repayable starting December 2021 and the non-convertible debentures will be repayable on June 30, 2025.

Overdues under its short-term working capital borrowings (including interest) will also be converted into working capital term loans and funded interest term loans to be repaid from December 2021. The company will have no interest and principal payments due on the restructured debt until September 2021, the rating agency noted.

(Edited by : Ankit Gohel)