Moody's Lowers Bi-Lo Debt Rating

ELLIOT ZWIEBACH

NEW YORK — Moody's Investor Service here said Tuesday it was downgrading certain notes issued by Bi-Lo LLC to B2 from B1.

The rating applies to the chain's proposed $285 million senior secured notes due in 2019, which are being issued to refinance Bi-Lo's existing $195 million senior secured term loan due in 2015 and to fund a $74 million cash distribution to an affiliate of Lone Star, the company's Dallas-based equity sponsor.

The $74 million dividend represents about half the cash equity investment made by the sponsor in conjunction with Bi-Lo's emergence from bankruptcy last April, Moody's noted.

According to Mickey Chadha, a senior analyst at Moody's, the downgrade to B2 "considers that Bi-Lo is pursuing a financial policy that is more aggressive than what was originally expected when we assigned a rating to the company in April 2010.

"The large debt-financed dividend, along with the elimination of the cash-flow sweep mechanism, suggests there will not be any meaningful reduction in funded debt through operating cash flow. As a result, we expect debt-to-EBITDA [ratio] will likely remain over five times, a level more consistent with a B2 corporate family rating."

Moody's said the rating outlook is stable "and assumes regional business conditions and credit metrics will not deteriorate."