Standard and Poor’s Downgrades Sotheby’s Credit Rating to B-

S&P Global Ratings has downgraded Sotheby’s credit rating from B to B- due to falling revenues and rising costs during the first quarter of 2024, according to a report from the Wall Street Journal.

S&P ratings, which are issued to both companies and countries, indicate the degree risk to investors. They span from AAA to D.

The auction house’s revenue has dropped 22 percent on the heels of a new, simplified fee structure that drastically lowered—and standardized—the traditional buyer’s premium, sellers’ fees, and commissions. At the time of the restructured fee announcement, chief executive Charlie Stewart said these are “changes [that] we’ve been contemplating for a long, long time.”

“I think this it’s good to have a fair, and clear, set of terms in the art market. This is kind of a growing-up moment. It’s a step toward maturity for the art world,” Stewart added. Some in the art world, however, considered the restructuring a risky move, since negotiating sellers’ fees is among the most powerful tools in an auction house specialist’s arsenal. For headline-grabbing lots, sellers’ fees are often brought down to zero. 

According to the Wall Street Journal, the price of Sotheby’s bonds has dropped by about 8 percent in the last month, leading to worry among investors that the auction house won’t be able refinance loans that are due in 2026. Prices for bonds due in 2027 have dropped to below 87 cents on the dollar, down from around 93 cents in mid-May.

The auction house’s debt-to-EBITDA ratio, which compares the company’s total debt to its earnings before interest, taxes, depreciation, and amortization, and is used as a measure of how easily a company can pay off its debt, increased from 7.7 times to 10 times, indicating higher debt relative to earnings.

Despite a cloudy financial outlook, Sotheby’s paid shareholders $8.5 million in dividends in the first quarter of 2024 and a total of $90 million last year.

S&P has a negative outlook on Sotheby’s rating, meaning it could downgrade the rating further if performance doesn’t improve. Sotheby’s is a private company owned by French telecom entrepreneur Patrick Drahi, who bought the house in 2019 for $2.7 billion.

Sotheby’s did not immediately respond to a request for comment.