NEW YORK — Moody's Investors Service here said Wednesday it was downgrading some of the debt ratings on BJ's Wholesale Club while maintaining a stable rating outlook.

The stable outlook recognizes the strength of the company's business model and the overall operating performance of the company, Moody's noted, while the downgrades recognize "the deterioration in the company's credit metrics that will result from BJ's paying a debt-financed dividend of approximately $450 million to its sponsors and certain members of management, as well as the increasingly aggressive financial policy tone this dividend sets.


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"Combined with a dividend of almost $650 million in 2012, BJ’s will have returned almost $1.1 billion to its sponsor/owners and management in a little over a year — well over double the approximately $600 million that was initially contributed as equity to the go-private leveraged buyout in September 2011."

BJ's was sold in 2011 to Beacon Holding, an affiliate of Leonard Green & Partners, and funds advised by CVC Capital Partners.

Moody's downgraded the company's corporate family and probability of default ratings to B3 from B2; and it downgraded the ratings on two existing secured term loans — a $1.29-billion secured first lien term loan to Caa1 from B3; and a $325 million secured second lien term loan to Caa2. Those ratings will be withdrawn upon closing of proposed new loans, to which Moody's assigned ratings: B3 on a new $1.45 billion secured first lien term loan; and Caa2 on a $650 million secured second lien term loan.

According to Moody's, BJ's debt has increased to $2.5 billion from $1.8 billion, resulting "in a debt/EBITDA pro forma for this incremental debt approaching eight times, and interest coverage well below 1.3 times, the combination of which results in a quantitative profile that is closer to Caa than B."

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