Burberry (Baa2 Neg, NR) Moody's moves to neg. outlook

Moody's echoing some of our (past) concerns; "governance considerations, notably in respect of management credibility and track record, were a driver of today's rating action." It's a past concern for us (hopefully) given a new CEO - one who will be under pressure to revive the brand.

• It's also confirmed that the new 30s was gross supply (what we thought at the time) with the £300m Sept 25s being kept on. It means credit markets were effectively funding elevated pay-outs to equity holders.
• Assumptions; -10% revenue fall in FY25 (12m to March), -30% fall in EBITDA to £550m leaving gross leverage ~3.5x - well into downgrade threshold and in line-with what we had (we said >3x justifying downgrade).
• Threshold for Moody's to take any more negative surprises to above assumptions seems very low. Consensus is lower though at -14% on headline and -43% on EBITDA.

1. B&M28s look better value; it used to give spread pick for shorter duration but now trades flat - we prefer it on protection from weaker macro (value retailer), expanding scale (growing) and clear BS policy
2. No near term positives. New collections will take time to be designed and rolled out. Winter collection will come earliest in September and uncertain how consumers will respond to that. New CEO was indicating he wants to be less pure lux...unclear what that will involve and how margin dilutive it may be.
3. No protection if PE buyer comes and loads debt on - equities holding near a 14yr low.