Soho House's credit rating downgraded

By Erin Smith

Published: 06 April, 2016

On Monday Moody's Investor Service credit rating agency downgraded the Soho House & Co and the Soho House Bond from Caa1 to Caa2, which is considered speculative grade is rated as poor quality and a very high credit risk.

According to Moody's the rationale behind the adjustment was due to slower than expect profit growth. "This rating action reflects slower than expected profit growth demonstrated by Soho House resulting in a significant increase in adjusted leverage beyond Moody's prior expectations."

The rating agency also changed the outlook status for both the company and the bond from 'under review' to having a 'negative' outlook, signalling that future downgrades may be possible.

"The negative rating outlook reflects the uncertainty embedded into Soho House's ambitious growth plans and the likelihood of associated volatility in operating results. In addition, leverage will remain high and interest coverage will continue to be pressured in the next 12-18 months," according to Moody's.

Soho House is a fully integrated hospitality company company that operates exclusive, private members clubs, public restaurants, hotels and spas in the UK and internationally. While the brand has a strong identity in the UK and targets professional in the creative industries, there is uncertainty about the potential for growth for the private members model in the other markets.

"Still, Moody's acknowledges Soho House's strong brand and growth potential although we are conscious of the capex required to support this growth. Moody's is also mindful of the uncertainty that results from Soho House exploring growth opportunities in new markets where the model is yet to be proven, which we expect may challenge profitability."

Equally in the UK the number of private members clubs has increased in recent years and the competition for members has intensified.

Soho House total revenues for 2015 were £283.8m.

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