PLEASANTON, Calif. — Safeway here said Friday it expects by the end of 2013 to bring debt ratios back to the levels where they were late last year, when it decided to undertake a temporary shift in financial policy.
That shift involved a decision to use incremental leverage for share repurchases at very low interest rates, given the five-year low on the chain's stock price and based on the company's "strong belief" it can grow operating income over the next three years, Melissa C. Plaisance, senior vice president, finance and investor relations, said in a conference call with investors.
The company also refinanced its $800 million debt due Aug. 15, 2012, with a $400 million five-year debt priced at 3.4% and a $400-million 10-year debt priced at 4.75%; plus a three-year $700 million term loan, from which it drew down $300 million in the first quarter.
Plaisance said the company met with the ratings agencies before shifting its financial policy "so we would know what impact our actions would have on our ratings and could chart a prudent course, with the objective of retaining investment-grade ratings and access to the commercial paper market." Safeway retained its mid-BBB stable long-term rating and its A2 short-term rating with Standard and Poor's but had a one-notch downgrade to Baa3/P3 with Moody's and BBB-/F3 from Fitch.
If Safeway is able to bring its debt ratios back to their previous levels by the end of 2013, Plaisance said, "we would expect to be in a position to earn back the one-notch downgrade from Moody's and Fitch, which would put us back in what we perceive is a sweet spot for our industry, allowing for what we believe to be optimal pricing and flexibility in the debt capital markets."
The call was arranged, she explained, "in response to a number of inquiries in the last week" regarding the temporary shift in financial policy and the floating-rate note debt issuance.