NEW YORK — Moody's Investor Service here said yesterday it is lowering the rating outlooks for the debt of Supervalu and its subsidiaries to negative from stable.
Moody's said the change reflects the possible disruptions to operations over the short term as Supervalu carries out its strategic initiatives “during a very challenging operating environment, [which] could lead to further margin compression or disruptions to top line that could negatively impact debt coverage metrics and prospects for further debt reduction.” The negative outlook also considers that the cushion under Supervalu’s covenants could become tighter due to those pressures, Moody’s added.
It also said that if Supervalu replaces the revolving credit facility that matures in 2011 with a facility secured by assets rather than stock, the unsecured debt ratings could be pressured further.
Moody's affirmed Supervalu's Ba3 ratings on the company's senior unsecured debt, reflecting “its modest margins, relatively high leverage ratios and adequate liquidity,” the rating service said, adding that credit metrics will continue to be pressured by fierce price competition among food retailers, product substitutions by consumers and deflation. Moody's also said Supervalu's plan to grow Save-A-Lot has potential to improve profitability in the longer term.
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