NEW YORK — Moody's Investors Service here said Tuesday it has lowered the ratings outlook for Stater Bros. Holdings, San Bernardino, Calif., to negative from stable.

"The change is prompted by the continuing decline in the company's profit margins due to pricing pressures resulting from increased competition and our expectation these declines will continue in the near- to medium-term," Moody's said. "Margin erosion has resulted in weakening of credit metrics."


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Moody's said it was affirming Stater's B2 corporate family rating, "[which] reflects the company's weak credit metrics, relatively small size, modest operating margins, regional concentration and competition from larger and financially stronger companies. Given that economic conditions in Southern California continue to remain weak and competition intense, business conditions will remain challenging, and margin improvement could be difficult over the near- to medium-term.

"The ratings are supported by Stater's good market presence in a well-penetrated market, positive free-cash flow profile and good liquidity."

Read more: Stater Maintains Price Focus

Moody's also affirmed Stater's B2-PD probability of default rating; its B2 rating on the company's $255 million senior unsecured notes due in 2018; and the B2 rating on its $285 million senior unsecured notes due in 2015, and it assigned the company an SGL-2 speculative grade liquidity rating.

According to Moody's, "The negative outlook reflects uncertainty regarding the company's ability to improve operating performance and credit metrics to levels consistent with the B2 rating category in the next 12 months. The negative outlook also acknowledges that the challenging operating environment will likely limit the company's profit and cash-flow improvement in the foreseeable future."

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