Ratings agency Moody's on Thursday downgraded Steinhoff's debt deeper into 'junk' territory and warned further downgrades could follow due to mounting cash flow problems at the South African retail group.
The company, majority owned by tycoon Christo Wiese, is fighting for survival following its disclosure of accounting irregularities that has wiped more than $12-billion off its market value.
The owner of European and US brands such as Mattress Firm, Conforama and Poundland told investors this month it was losing credit lines from lenders over the scandal that has seen veteran CEO Markus Jooste quit and the company come under scrutiny from local and overseas regulators.
Moody's, which had already downgraded Steinhoff's credit rating earlier this month, said in a statement the new rating reflected a "substantial risk" of default.
The agency cut its rating for Steinhoff International Holdings to Caa1, seven notches into junk.
"Steinhoff's CFR (Corporate Family Ratings) and Moody's review of its CFR for further downgrade reflect the increasing pressure on the company's liquidity profile," Moody's said.
"The situation has been compounded by its operating companies placing an additional liquidity burden on Steinhoff's centralized treasury function to fund their working capital needs."
Steinhoff has $2-billion of term loans maturing between 2018 and 2020, and the interest rate payable on the loans is expected to soar to around 250 to 280 basis points above the benchmark lending rate of European banks following the downgrades.
Steinhoff has been on shopping spree since 2011 when it took over French furniture retailer Conforama. Last year's string of acquisitions included Mattress Firm and Poundland, thrusting it firmly on to investors' radar screens.
The company has yet to explain in full what the "accounting irregularities" entail, but has said it is considering raising around €2-billion euros ($2.4-billion) from the sale of non-core assets and the proceeds of debt repayments from African unit Steinhoff Africa Retail.