Fitch Ratings has downgraded and removed from Rating
Watch Negative the ratings of SUPERVALU Inc. (SUPERVALU) and
Albertson's Inc. (Albertson's), where they were placed on Jan. 23,
2006 as outlined below.
SUPERVALU
-- Issuer Default Rating (IDR) to 'BB-' from 'BBB';
-- Senior unsecured notes to 'B+' from 'BBB'
Albertson's
-- Issuer Default Rating (IDR) to 'BB-' from 'BBB';
-- Senior unsecured notes to 'BB-' from 'BBB'.
Fitch has also assigned the following ratings:
SUPERVALU
-- $2 billion revolving credit facility 'BB';
-- $1.25 billion Term Loan A 'BB';
-- $750 million Term Loan B 'BB'.
The 'F2' rating on Albertson's commercial paper program has been withdrawn. The 'BBB' ratings on SUPERVALU's existing $750 million bank facility and Albertson's existing $1.4 billion total bank facilities will be withdrawn upon completion of the transaction.
These actions are in anticipation of the June 2006 close of the acquisition by SUPERVALU of 1,124 grocery stores from Albertson's for $12.4 billion. The ratings are based upon current information and are subject to change if there are material changes in the anticipated capital structure. The transaction has been approved by the board of directors of both SUPERVALU and Albertson's and has cleared Hart-Scott-Rodino but is subject to approval by SUPERVALU, Inc. and Albertson's stockholders. Approximately $10 billion of debt is affected by these actions. The Rating Outlook is Negative.
The downgrade of SUPERVALU's IDR reflects the expected increase in financial leverage, as well as the risks associated with integrating an acquisition of this size and SUPERVALU's ability create a strategy that will address high levels of competition in its markets. Also considered are the company's sizeable and more geographically diverse store base and strong market shares in key markets.
As structured, SUPERVALU will acquire 1,124 grocery stores from Albertson's for $12.4 billion comprised of $4.1 billion in cash and $2.2 billion in stock plus $6.1 billion in Albertson's debt, assuming the HITS settle in May 2007. The cash portion of the transaction is expected to be financed with cash and about $2.26 billion of new debt under the term loans and revolver. As a result, following the close of the transaction SUPERVALU is expected to have approximately $10 billion in debt and weakened credit metrics. Adjusted leverage, measured by total debt to EBITDAR, is anticipated to increase to over 4.0 times (x) from 2.4x for the latest twelve months ended Dec. 3, 2005 and EBITDAR coverage of interest and rents is expected to decline to less than 3x from 4.3x, over the same period.
In addition, while this acquisition will benefit SUPERVALU by significantly increasing its presence in food retailing and its geographic footprint, SUPERVALU is expected to face challenges in integrating the two companies. Management will also need to strengthen the performance of the Albertson's assets while creating a viable long term strategy that addresses the high levels of competition in its markets. Following the close of the transaction, SUPERVALU will be the second largest U.S. supermarket operator with retail operations in 48 U.S. states and pro forma revenues of about $44 billion, up from $19.9 billion for the fiscal year ending Feb. 26, 2006. Food retail operations will account for about 80% of revenue for the new entity up from 54% for the existing SUPERVALU operations. Nonetheless, the two companies do not have significant store base overlap and will have strong positions in key markets operating under well known banners including Acme Markets, Bristol Farms, Jewel-Osco, Shaw's Supermarkets, Star Markets, and Albertson's in the Intermountain, Northwest, and Southern California markets.
The 'BB' ratings for the new $2 billion secured revolving credit facility and the term loans A and B, which will be located at the SUPERVALU Inc. holding company level, are based a the guarantee from each wholly owned direct and indirect U.S. subsidiary of SUPERVALU and a secured pledge of equity interest in each material direct and indirect U.S. subsidiary. SUPERVALU's existing senior unsecured notes are rated 'B+' as they will be serviced by cash flows from SUPERVALU assets after the secured debt has been paid.
The IDR for the Albertson's subsidiary is based on an analysis of the operations and the understanding that all the acquired assets will remain in the operating subsidiary. The existing Albertson's unsecured debt is rated the same as the IDR given its structural position and proximity to the Albertson's assets and cash flow.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
SUPERVALU
-- Issuer Default Rating (IDR) to 'BB-' from 'BBB';
-- Senior unsecured notes to 'B+' from 'BBB'
Albertson's
-- Issuer Default Rating (IDR) to 'BB-' from 'BBB';
-- Senior unsecured notes to 'BB-' from 'BBB'.
Fitch has also assigned the following ratings:
SUPERVALU
-- $2 billion revolving credit facility 'BB';
-- $1.25 billion Term Loan A 'BB';
-- $750 million Term Loan B 'BB'.
The 'F2' rating on Albertson's commercial paper program has been withdrawn. The 'BBB' ratings on SUPERVALU's existing $750 million bank facility and Albertson's existing $1.4 billion total bank facilities will be withdrawn upon completion of the transaction.
These actions are in anticipation of the June 2006 close of the acquisition by SUPERVALU of 1,124 grocery stores from Albertson's for $12.4 billion. The ratings are based upon current information and are subject to change if there are material changes in the anticipated capital structure. The transaction has been approved by the board of directors of both SUPERVALU and Albertson's and has cleared Hart-Scott-Rodino but is subject to approval by SUPERVALU, Inc. and Albertson's stockholders. Approximately $10 billion of debt is affected by these actions. The Rating Outlook is Negative.
The downgrade of SUPERVALU's IDR reflects the expected increase in financial leverage, as well as the risks associated with integrating an acquisition of this size and SUPERVALU's ability create a strategy that will address high levels of competition in its markets. Also considered are the company's sizeable and more geographically diverse store base and strong market shares in key markets.
As structured, SUPERVALU will acquire 1,124 grocery stores from Albertson's for $12.4 billion comprised of $4.1 billion in cash and $2.2 billion in stock plus $6.1 billion in Albertson's debt, assuming the HITS settle in May 2007. The cash portion of the transaction is expected to be financed with cash and about $2.26 billion of new debt under the term loans and revolver. As a result, following the close of the transaction SUPERVALU is expected to have approximately $10 billion in debt and weakened credit metrics. Adjusted leverage, measured by total debt to EBITDAR, is anticipated to increase to over 4.0 times (x) from 2.4x for the latest twelve months ended Dec. 3, 2005 and EBITDAR coverage of interest and rents is expected to decline to less than 3x from 4.3x, over the same period.
In addition, while this acquisition will benefit SUPERVALU by significantly increasing its presence in food retailing and its geographic footprint, SUPERVALU is expected to face challenges in integrating the two companies. Management will also need to strengthen the performance of the Albertson's assets while creating a viable long term strategy that addresses the high levels of competition in its markets. Following the close of the transaction, SUPERVALU will be the second largest U.S. supermarket operator with retail operations in 48 U.S. states and pro forma revenues of about $44 billion, up from $19.9 billion for the fiscal year ending Feb. 26, 2006. Food retail operations will account for about 80% of revenue for the new entity up from 54% for the existing SUPERVALU operations. Nonetheless, the two companies do not have significant store base overlap and will have strong positions in key markets operating under well known banners including Acme Markets, Bristol Farms, Jewel-Osco, Shaw's Supermarkets, Star Markets, and Albertson's in the Intermountain, Northwest, and Southern California markets.
The 'BB' ratings for the new $2 billion secured revolving credit facility and the term loans A and B, which will be located at the SUPERVALU Inc. holding company level, are based a the guarantee from each wholly owned direct and indirect U.S. subsidiary of SUPERVALU and a secured pledge of equity interest in each material direct and indirect U.S. subsidiary. SUPERVALU's existing senior unsecured notes are rated 'B+' as they will be serviced by cash flows from SUPERVALU assets after the secured debt has been paid.
The IDR for the Albertson's subsidiary is based on an analysis of the operations and the understanding that all the acquired assets will remain in the operating subsidiary. The existing Albertson's unsecured debt is rated the same as the IDR given its structural position and proximity to the Albertson's assets and cash flow.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.