THE Co-operative Group may lose its investment grade credit status after a deal to acquire 632 branches from Lloyds Banking Group, including the Lloyds TSB Scotland estate, prompted Standard & Poor's to review its rating.
S&P has put Co-operative, whose interests range from supermarkets to funeral services, on "CreditWatch with negative implications".
It currently rates the group as BBB-, one notch above junk status.
Co-operative is issuing debt, underwritten by Lloyds, to raise the initial £350 million payment for the so-called Project Verde portfolio.
S&P said: "In view of the currently difficult trading conditions for the UK food retail sector, we consider that the acquisition has the potential to weaken the Co-operative's credit metrics beyond the levels we consider commensurate with the current ratings."
It added: "On completion of our review, we could affirm the ratings or lower them by one notch."
Co-operative is to pay up to another £400m in instalments to 2027, which will be funded from the cash flow of its banking arm.
The deal with Lloyds will give it 185 Lloyds TSB Scotland branches plus four Cheltenham & Gloucester outlets in Scotland.
They will be rebranded as TSB from next summer and the deal will be completed by November 2013.
Co-operative Bank currently has four branches in Scotland, three of them operating as Britannia.
Lloyds was told to sell the so-called Project Verde portfolio by European competition officials as a condition of its £21 billion taxpayer bailout following its rescue acquisition of Halifax Bank of Scotland in 2008.
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