Moody's Places Safeway's (SWY) Ratings on Review for Potential Downgrade
Tweet
Share
E-mailGet Alerts SWY Hot Sheet
Join SI Premium – FREE
Moody's Investors Service placed Safeway Inc.'s (NYSE: SWY) ratings on review for possible downgrade including its senior unsecured rating of Baa3 and its Commercial Paper rating of Prime-3. The review for possible downgrade follows Safeway's announcement that it has agreed to be acquired by AB Acquisition LLC ("AB Acquisition") in a transaction valued at about $9 billion or about $40 a share including proceeds from the sale of Safeway's property development subsidiary Property Development Centers ("PDC"), the sale of Safeway's 49% holding in Casa Ley, the fifth-largest food and general merchandise retailer in Mexico and the estimated value of the distribution of Safeway's remaining 72.2% shares of Blackhawk Network Holdings, Inc. AB acquisition is controlled by a Cerberus led investor group and owns Albertsons LLC and New Albertsons Inc. which together operate 1,075 grocery stores.
AB Acquisition will fund the merger in part with debt financing of approximately $7.6 billion, equity contribution of approximately $1.25 billion, and cash on hand of Safeway. We expect the majority of Safeway's $4.2 billion in existing debt - of which $2.3 billion has a change of control provision enabling investors to put these notes back to the company at $101 - will be repaid at closing or shortly after closing, other than about $425 million in capital leases and about $750 million in senior unsecured notes which do not have a change of control provision.
RATINGS RATIONALE
The review for downgrade reflects the high probability that the proposed transaction will result in significantly higher financial leverage which we estimate could increase to as high as around 7.0 times (with Moody's standard adjustments). Moody's review will focus on the details of the proposed transaction including financial terms, capital structure, and future financial policy. The review will also focus on the regulatory review including store closures, if any, required by regulators, synergies and cost savings resulting from the transaction, projected credit metrics, liquidity, and performance expectations over the next twelve to eighteen months.
Based on our expectation of the level of deterioration in credit metrics as a result of this transaction ratings could be downgraded several notches. The review will most likely continue until regulatory approvals are obtained and the transaction closes.
The following ratings are placed on review for possible downgrade:
Senior unsecured rating at Baa3
Long term issuer rating at Baa3
Senior unsecured shelf at (P) Baa3
Commercial Paper rating at Prime-3
The principal methodology used in this rating was the Global Retail Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
AB Acquisition will fund the merger in part with debt financing of approximately $7.6 billion, equity contribution of approximately $1.25 billion, and cash on hand of Safeway. We expect the majority of Safeway's $4.2 billion in existing debt - of which $2.3 billion has a change of control provision enabling investors to put these notes back to the company at $101 - will be repaid at closing or shortly after closing, other than about $425 million in capital leases and about $750 million in senior unsecured notes which do not have a change of control provision.
RATINGS RATIONALE
The review for downgrade reflects the high probability that the proposed transaction will result in significantly higher financial leverage which we estimate could increase to as high as around 7.0 times (with Moody's standard adjustments). Moody's review will focus on the details of the proposed transaction including financial terms, capital structure, and future financial policy. The review will also focus on the regulatory review including store closures, if any, required by regulators, synergies and cost savings resulting from the transaction, projected credit metrics, liquidity, and performance expectations over the next twelve to eighteen months.
Based on our expectation of the level of deterioration in credit metrics as a result of this transaction ratings could be downgraded several notches. The review will most likely continue until regulatory approvals are obtained and the transaction closes.
The following ratings are placed on review for possible downgrade:
Senior unsecured rating at Baa3
Long term issuer rating at Baa3
Senior unsecured shelf at (P) Baa3
Commercial Paper rating at Prime-3
The principal methodology used in this rating was the Global Retail Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Wolfe Research Downgrades Warner Brothers Discovery (WBD) to Underperform, 'out of concern that an incipient advertising downturn put guidance at risk'
- Hibbett Sports (HIBB) Acquired by JD Sports Fashion for $87.50/sh or $1.1B
- CoStar Group (CSGP) to Acquire Matterport (MTTR) for $5.50/sh Cash and Stock
Create E-mail Alert Related Categories
Credit RatingsRelated Entities
Cerberus Capital, Moody's Investors Service, Definitive AgreementSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
