Farfetch sees credit rating downgraded amid cash troubles

Moody's Investors Service has downgraded Farfetch citing governance concerns after the luxury platform announced it would not release Q3 2023 results and that previous forecasts should not be relied upon. The rating considers the decline in Farfetch's share price, impacting its access to capital markets, and soft demand in the luxury clothing market due to reduced consumer spending.

Moody's in its downgrade statement said it will focus its review on Farfetch's future prospects, liquidity, and capital structure sustainability. An upgrade is unlikely, and the confirmation would require assurance that the company has sufficient liquidity for the next 12-18 months to support growth. A downgrade is probable if the review concludes that diminishing liquidity may lead to a financial restructuring.

As reported by Investorplace, Farfetch is facing limited avenues for capital raising, placing it in a precarious situation. The news of Moody's credit rating downgrade to Caa2 on Tuesday led to FTCH stock hitting a new all-time low. This downgrade holds significance, indicating that the company's capacity to raise capital in the debt markets is expected to be significantly impeded.

Moody's considers Farfetch's founder-driven entrepreneurial culture crucial for governance, but the dual-class voting structure limits other shareholders' influence. The rating agency believes there is less certainty in strategic decisions and financial policies balancing the interests of shareholders and creditors compared to more mature businesses.