S&P Places Dollar General (DG) on CreditWatch Negative Following Family Dollar (FDO) Bid

Standard & Poor's Ratings Services placed all its ratings on Dollar General Corp. (NYSE: DG), including its 'BBB-' corporate credit rating and 'BBB-' issue-level rating on the company's senior unsecured debt, on CreditWatch with negative implications.

"The CreditWatch placement comes after Dollar General announced an all-cash proposal to acquire struggling Family Dollar (NYSE: FDO) and extract $550 million to $600 million in estimated run-rate synergies through the transaction," said credit analyst Diyer Iyer. "We anticipate that pro forma for this deal, Dollar General's leverage would approach the 5.0x range—a significant increase from the mid-2.0x in the 12 months through its latest quarter."

We would expect to take a rating action in coming months on Dollar General based on the outcome of the bidding for Family Dollar. Specifically, we would evaluate pro forma capital structure, operating strategies, management, growth plans, and anti-trust issues associated with the merger. The recovery prospects of the combined entity would likely drive any ratings on the company's new debt. If the transaction does not occur, we would consider Dollar General's intent to make other debt-financed transformative acquisitions when we resolve the CreditWatch placement.

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