Fitch Rates Kroger's New $500MM Sr. Unsecured Notes 'BBB'; Outlook Stable
NEW YORK-(Business Wire)-September 25, 2009 - Fitch Ratings has assigned a rating of 'BBB' to The Kroger Co.'s (Kroger) new $500 million 3.9% senior unsecured notes due 2015. The Rating Outlook is Stable.
Proceeds from the offering will be used to refinance existing debt, with $500 million maturing in February 2010, and for general corporate purposes. The notes contain a change of control provision along with a limitation on liens, sale leasebacks, and mergers and acquisitions. The notes will be guaranteed by most subsidiaries and will rank equally with Kroger's other senior unsecured debt. As of Aug. 15, 2009, Kroger had $7.5 billion of debt outstanding, including capital leases.
The rating reflects Kroger's successful operating strategy which has allowed the company to achieve industry leading identical store sales trends, its ability to generate cost efficiencies and strong cash flow, and its conservative financial management. The rating also considers the challenging economic environment and intense competition in the sector which are expected to continue to pressure operating profitability.
Kroger is the largest supermarket operator in the U.S. with $75 billion in sales generated across 2,470 supermarket and multi-department stores across 31 U.S. states as well as 1,156 convenience and jewelry stores. The company's Customer 1st operating strategy, which is primarily focused on improving the customers' shopping experience through pricing, service, merchandise, and store experience, has allowed it to maintain leading market share positions in most of its major markets and industry leading non-fuel identical store sales. Kroger's multi-year investments in pricing and its merchandising initiatives have reinforced its strong price perception with customers which, in the current challenging economic and competitive environment, is a competitive strength.
The company has funded much of its price investment with operating cost savings. Therefore, EBIT margins have remained relatively stable over time. Cash flow generation has also been strong, allowing the company to continue to invest about $2.0 billion in capital expenditures while maintaining stable credit metrics. For the latest 12 months ended Aug. 15, 2009, leverage, measured by total adjusted debt to operating EBITDAR, was 2.9 times (x) and EBITDAR coverage of interest and rents was 3.7x. Fitch expects Kroger to continue to maintain strong credit metrics given its conservative financial management and strong operating strategy.
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.
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