GKN’s credit rating downgraded to junk status

GKN’s stock has been downgraded to junk status by a leading credit agency in the wake of its takeover by Melrose

Moody’s said that GKN’s “declining profits” was a factor, as well as Melrose’s approach of carrying more debt.

Melrose acquired control of GKN in late March after a drawn-out takeover battle which GKN’s board battled to resist.

Mattias Heck, Moody’s lead analyst for GKN said: “GKN’s declining profits and Melrose’s more aggressive financial policy” had caused the downgrade. Melrose is a city business which specialises in the acquisition of manufacturing companies.

He added: “The subsequent downgrade review process will focus on the impact Melrose will have on GKN’s financial policy, funding structure and its business profile.”

GKN, which was downgraded by Moody’s earlier this year, is now rated Ba1.

Melrose specialises in making acquisitions of manufacturing companies.

Melrose claims it “buys good manufacturing businesses which are underperforming their potential, invests in them to improve their performance and returns the value to shareholders when sold”. During the takeover period, GKN’s management accused Melrose of being interested in “financial engineering” rather than manufacturing.

Melrose borrowed £1.4 bn to buy GKN plus another £2.1 bn to refinance GKN’s existing debt.

Redditch-based GKN employs 6,000 people in the UK and 52,000 in the rest of the world. It designs, manufactures and services components for original equipment manufacturers around the world.

.