NEW YORK — Moody's Investors Service here said Wednesday it was downgrading Supervalu's ratings, saying it is unlikely the company's performance metrics will improve meaningfully in the near term due to weak industry conditions and unique company factors.
However, the outlook for Supervalu's ratings is stable, Moody's said, based on the company's strategy to leverage its scale to reduce costs while focusing on local merchandising and operations — a plan that will ultimately be beneficial, Moody's said, "but [that] is likely to cause disruption in the stores, employee base and customer base during the rollout."
Moody's downgraded Supervalu's corporate family rating to B1 from Ba3 and lowered its senior unsecured debt to B2.
According to Moody's, "Volatility in performance and credit metrics is likely to continue for an extended period as Supervalu implements its turnaround strategy. Supervalu's debt maturity schedule is also a factor, as the company may need to borrow a meaingful amount under its revolving credit facility in early 2011to bridge timing dfferences between upcoming debt maturities in advance of expected operating cash flow.
"Although management is highly focused on reducing long-term debt, Moody's is concerned that pursuing this goal could restrict store investment for some time, potentially hurting the company's competitive positioning. Supervalu's capital structure restricts its potential for taking on secured debt, which reduces financing options and therefore inhibits its financial flexibility."
