Victoria downgraded to ’RD’ by Fitch, then upgraded to ’CCC’

Investing.com -- Fitch Ratings has downgraded Victoria PLC’s Long-Term Issuer Default Rating (IDR) to ’RD’ (Restricted Default) from ’CCC-’ following what it views as a distressed debt exchange (DDE), before subsequently upgrading the IDR to ’CCC’.

The rating agency also downgraded the company’s senior secured notes (SSNs) to ’CC’ with a Recovery Rating of ’RR3’ from ’CCC/’RR3’ and removed them from Rating Watch Negative.

Fitch classified Victoria’s exchange offer as a DDE because the amendments resulted in material reductions from original terms, including loss of seniority for certain bondholders, removal of covenants, and extension of debt maturities. The company secured consent from over 90% of bondholders, exceeding the required threshold and averting a probable default.

Following the transaction, Fitch assigned the new first priority notes (FPNs) a ’CCC+’/’RR3’ rating and affirmed the remaining SSNs at ’CC’/’RR6’.

The ratings reflect Victoria’s high leverage and ongoing operational underperformance. Fitch forecasts EBITDA gross leverage to remain high at 9.6x at the end of the financial year 2026, driven by higher gross debt and subdued EBITDA.

Victoria’s new capital structure provides maturity extensions for the 2026 notes and revolving credit facility, offering a cushion for liquidity and cash flow recovery. However, a springing maturity clause in the FPNs requires refinancing of £143 million of 2028 SSNs by December 2027.

Fitch expects only modest recovery in demand from the first half of the financial year ending March 2027 onwards, with low single-digit revenue growth. The agency forecasts Victoria’s EBITDA margin will improve to 8.2% in FY26, down from its previous estimate of 9.2%, due to flat volumes in soft flooring and ceramic tiles segments and ongoing business restructurings.

The rating agency expects free cash flow to remain significantly negative in FY26, driven by lower EBITDA and working capital outflows, and to stay moderately negative from FY27 onwards.

Victoria maintains a diversified customer base, primarily comprising small independent retailers with limited exposure to third-party distributors. The top 10 customers account for less than 20% of sales, and the company has established strong brand loyalty.

Factors that could lead to a further downgrade include deterioration in liquidity affecting refinancing ability or weaker-than-expected business turnaround. An upgrade could result from improved visibility of refinancing the 2028 notes, including as a consequence of operational improvement.

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