Moody’s Downgrades Grubhub

Moody’s Investors Services, the highly visible bond credit rating business, downgraded its outlook for Grubhub while maintaining a stable outlook for the third-largest U.S. restaurant delivery provider. The ratings firm cited erosion in Grubhub’s liquidity, sustained negative EBITDA and a decline in cash and short-term investments.

Moody’s downgraded Grubhub Holdings Inc’s Corporate Family Rating (FR) and the rating for its senior unsecured notes to B3 from B1. Moody’s also withdrew Grubhub’s Speculative Grade Liquidity rating, as the company no longer files public financial statements since its acquisition by Just Eat Takeaway.com.

“The downgrade of the CFR to B3 reflects a substantial erosion in Grubhub’s liquidity and its sustained negative adjusted EBITDA in the YTD 3Q 2021 period. Grubhub’s cash and short-term investments have declined to $184 million at 3Q ’21, from $467 million a year ago,” Moody’s said in its report. The company also terminated its $225 million revolving credit facility following its acquisition by Just Eat Takeaway.com. Governance and social risk considerations are key drivers of the rating action.”

Noting that JET has said it plans to focus Grubhub’s investments in its key stronghold markets and expand into additional non-food delivery categories, Moody’s said “Grubhub’s high social risks reflect the heightened regulatory scrutiny of the online food delivery industry and the uncertainty from the potential reclassification of independent drivers and couriers as employees.”

The omicron variant of the coronavirus was also listed as a factor introducing additional uncertainty, saying that it’s “unclear how food order volumes will trend and if competition for market share will intensify as demand returns to normal growth patterns.”

The report also noted that, while JET has not committed to financially supporting Grubhub, “Moody’s believes that given Grubhub’s scale in the US market and the sizable value of the acquisition of Grubhub, the parent will support Grubhub if investments and delivery fee limitations continue to pressure liquidity. Moody’s views Grubhub’s liquidity as weak given its $184 million of cash balances (which could decline further absent support from the parent), relative to the company’s restaurant liability obligations that Moody’s estimates exceed its cash position.”

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