NEW YORK — Moody's Investors Service here said Monday it was downgrading the senior unsecured rating for Safeway, Pleasanton, Calif., to Baa3 from Baa2, with a stable outlook.
The downgrade follows the company's issuance of $800 million in senior unsecured notes and the closing of a new $700 million delayed draw term loan in December.
Safeway said it expects the proceeds from the notes and the term loan to be used for general corporate purposes, refinancing debt and funding an increase in share repurchases.
According to Moody's, "The increase in debt levels to finance share repurchases demonostrates a shift to a more aggressive financial policy and results in further weakening of Safeway's credit metrics. The Baa3 rating incorporates the expectation that credit metrics will gradually improve in the near to medium term."
The rating also reflects the company’s scale, good cash flow, adequate liquidity and its market position, Moody's pointed out, as well as positive management initiatives geared toward market differentiation through customer loyalty, health and wellness programs, and cost control.
Moody's said the stable outlook incorporates its expectation of improvements in credit metrics to levels consistent with the rating category.