THE creditworthiness of loans made to Skelmersdale retailer Matalan have been downgraded as “difficult trading conditions” puts pressure on profits.

Ratings agency Moody’s has downgraded Matalan’s corporate family rating, which encompasses all of the group’s financial obligations, adding that the outlook remains “negative”.

Another agency, Standard & Poor’s (S&P), has placed the value retailer’s parent company, Missouri TopCo, on CreditWatch “with negative implications”.

This move followed its analysis of Matalan’s preliminary management accounts. S&P expects the retailer’s accounts for the year to February, 2011, to show a fall in like-for-like sales of 2%, with revenues remaining around £1.1bn.

However, it is forecasting that EBITDA – earnings before interest, tax, depreciation and amortisation, which is a measure of profitability – will show a fall of 8% to £154m. It blamed the heavy snowfall before Christmas which was a particular problem for Matalan’s stores, which are mainly situated outside town centres.

It is also concerned about the effect of inflation on costs and on customers’ spending power throughout its 2012 financial year.

S&P’s credit analyst Marketa Horkova said: “The CreditWatch placements reflect our view of Matalan’s operating performance in the 2011 financial year, which was weaker than we anticipated, and, in our opinion, will lead to reduced headroom under the company’s covenants for its £300m senior secured bank facilities.”

Matalan has announced plans to refinance by replacing its existing secured bank facilities with a £250m bond and a £50m revolving credit facility.

This would provide greater flexibility for Matalan because the £250m secured notes would only become due in 2016. Existing unsecured notes worth £225m are due in 2017.

The refinancing gives some reassurance to the markets because they will be backed by guarantees from Missouri TopCo.

Moody’s has given the proposed £250m notes a provisional rating of Ba1, two notches higher than Matalan’s corporate family rating of Ba3, because of the security offered.

Matalan founder John Hargreaves started more than 40 years ago with a market stall in Liverpool, with the first Matalan store opening in Preston in 1985. It was floated in 1997 before Mr Hargreaves took the company private in 2006.

The retailer now has 206 stores, including six in Merseyside.