Moody's Raises SUPERVALU, Inc. (SVU) CFR to 'B1'; Credit Profile Continues Showing Improvement

Moody's Investors Service today upgraded SUPERVALU Inc.'s (NYSE: SVU) corporate family rating to B1 from B2 and upgraded the company's probability of default rating to B1-PD from B2-PD. Moody's also upgraded the rating of the company's $1.5 billion senior secured term loan maturing 2019 to Ba3 from B1, upgraded the rating of the company's $628 million senior unsecured notes maturing 2016 and the company's $400 million senior unsecured notes maturing 2021 to B3 from Caa1. In addition, Moody's assigned a B3 rating to the company's proposed $350 senior unsecured notes maturing 2022. The proceeds from the new notes will be used to redeem and retire a portion of the senior unsecured notes due 2016. Moody's also affirmed SUPERVALU's speculative grade liquidity rating of SGL-1. The outlook is stable.

RATINGS RATIONALE

"The initiatives undertaken by new management in the last year continue to be successful in improving the company's operating performance resulting in a stronger credit profile", Moody's Senior Analyst Mickey Chadha stated. "The refinancing of a portion of the unsecured notes maturing in 2016 and the amendments to the term loan and ABL revolving credit facility eliminating the springing maturity provision and lowering the cost of debt enhances the company's liquidity and is also a credit positive", Chadha further stated.

The B1 Corporate Family Rating is supported by SUPERVALU's very good liquidity, its overall size in food distribution and retailing and the potential for improved profitability and growth in the long term through leveraging fixed costs of the distribution operation and catering to a growing segment of thrifty consumers through the growing Save-A-Lot segment. Although SUPERVALU's leverage is high it has improved and we expect it to continue to decline - debt/EBITDA (as adjusted by Moody's) is expected to be below 5.0 times in the next 12-18 months. The rating continues to reflect the challenges associated with the growth of the company's independent business which accounts for about half the company's top line and has experienced a revenue decline due to lower sales to the military and the loss of existing accounts. The rating also incorporates the potential of a negative impact on profitability due to the company's Transition Services Agreements (TSA's) with Albertson's LLC and New Albertson's, Inc. not being extended beyond its extended term which ends in September 2016 if cost cuts do not result in offsetting the elimination of a meaningful revenue stream provided by the TSA's. The weak economic environment and strong competition from alternative food retailers could also continue to weigh on consumer spending behavior and pressure pricing and margins.

The following ratings are upgraded:

Corporate Family Rating to B1 from B2

Probability of Default Rating to B1-PD from B2-PD

$1.5 billion senior secured term loan maturing 2019 to Ba3 (LGD3) from B1 (LGD3)

$628 million senior unsecured notes maturing 2016 to B3 (LGD5) from Caa1 (LGD5)

$400 million senior unsecured notes maturing 2021 to B3 (LGD5) from Caa1 (LGD5)

The following ratings are assigned:

Proposed $350 million senior unsecured notes maturing 2022 at B3 (LGD5)

The following ratings are affirmed:

Speculative grade liquidity rating at SGL-1

SUPERVALU's stable rating outlook reflects Moody's expectation that new management's strategic initiatives will continue to improve SUPERVALU's profitability and credit metrics in the next 12-18 months.

Ratings could be upgraded if the company's operating performance continues to improve and the momentum in earnings growth and identical store sales is sustained with no deterioration in liquidity. A ratings upgrade will also require sustained debt/EBITDA below 4.25 times and sustained EBITA/interest over 2.5 times.

Ratings could be downgraded if revenues, margins or profitability erode or operational missteps result in a weakening of the liquidity or business profile. Ratings could also be downgraded if there is evidence of deterioration in SUPERVALU's market position as demonstrated by sustained decline in identical store sales and margins. A downgrade could also occur if debt/EBITDA is sustained above 5.25 times or EBITA/interest is sustained below 1.75 times.

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