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Rating Action:

Moody's downgrades SUPERVALU's CFR to B3; outlook changed to negative

Global Credit Research - 19 Jul 2012

Approximately $4.7 billion of rated debt affected

New York, July 19, 2012 -- Moody's Investors Service today downgraded the Corporate Family Rating, and probability of default rating of SUPERVALU Inc. ("SUPERVALU") to B3 from B1. In addition Moody's also downgraded the ratings of the senior unsecured debt of SUPERVALU and its subsidiaries to Caa1 and assigned a B1 rating to the company's new $850 million senior secured term loan. The rating outlook is negative. The new term loan is secured by real estate and will refinance the company's existing term loans. As part of the transaction SUPERVALU will also replace its existing $1.5 billion revolving credit facility with a $1.65 billion ABL revolving credit facility.

RATINGS RATIONALE

"SUPERVALU continues to lose traffic and market share in an increasingly challenging and competitive industry as evidenced by its long history of declining identical store sales," Moody's Senior Analyst Mickey Chadha stated. "We expect these negative trends to continue as the company's strategy of lowering prices and simultaneously cutting costs has been unsuccessful in stemming the loss in customer count and its intention of accelerating these price investments will result in further revenue declines and margin pressure."

The company's recent announcement that it is exploring strategic alternatives to enhance shareholder value including the sale of all or part of the company adds further credence to Moody's opinion that management has been unable to improve the company's operating performance using its current strategy, existing store base and capital structure. The company also announced the suspension of its dividend and the lowering of its capital expenditures to conserve cash and invest in pricing.

The B3 Corporate Family Rating reflects SUPERVALU's continuing weak operating performance vis a vis its peers and Moody's expectation that revenue and profit declines will continue in the near to medium term and credit metrics will remain weak. The rating also reflects the execution risk associated with the company's aggressive price investment strategy and Moody's opinion that the weak economic environment will weigh heavily on consumer spending behavior and strong competition from alternative food retailers will continue. Ratings are supported by SUPERVALU's overall size in food retailing and distribution, its long-established regional brands, adequate liquidity, favorable geographic footprint and store locations, and the growth potential represented by its Save-A-Lot brand and licensing arrangements.

The following ratings have been downgraded and LGD point estimates updated:

Corporate Family Rating to B3 from B1

Probability of Default Rating to B3 from B1

SUPERVALU Inc. Senior Unsecured Debt (all tranches) to Caa1 (LGD5, 71%) from B2 (LGD4, 58%)

SUPERVALU Inc. Senior Unsecured Shelf and MTN programs to (P)Caa1 (LGD5,71% ) from (P)B2 (LGD4, 58%)

New Albertson's Inc. Senior Unsecured Debt (all tranches) to Caa1 (LGD 5, 71%) from B2 (LGD4, 58%)

New Albertson's Inc. Senior Unsecured Shelf and MTN programs to (P)Caa1 (LGD5, 71%) from (P)B2 (LGD4, 58%);

American Stores Co. Senior Unsecured Debt (all tranches) to Caa1 (LGD5, 71%) from B2 (LGD4, 58%)

The following ratings are assigned:

SUPERVALU, Inc. $850 million senior secured term loan maturing 2019 at B1 (LGD2, 26%)

SUPERVALU's rating outlook is negative reflecting the uncertainty surrounding the company's strategic review which could distract management and reduce employee morale thereby undermining efforts for a turnaround. The possible sale of the company's independent business or its hard discount Save-A-Lot chain will further weaken the company's business profile by reducing diversification, profitability and growth. The outlook also incorporates Moody's expectation that the company's aggressive price investment strategy will lead to continued declines in identical store sales and downward pressure on margins resulting in weakening of credit metrics in the next 12-18 months. Management's continued focus on debt reduction and announced cut back in capital expenditures will continue to restrict store investments, further eroding the company's already weak competitive positioning.

Ratings could be upgraded if the company's restructuring efforts gain traction and result in a reversal of its identical store sales and earnings declines while maintaining the quality of its store base, and a sustained strengthening of its liquidity and credit metrics.

Ratings could be downgraded if any operational misstep or resolution of the company's strategic review results in weakening of liquidity, capital structure or business profile. Ratings could also be downgraded if there is evidence of further deterioration in SUPERVALU's market position as demonstrated by sustained decline in identical store sales and margins. A downgrade could also occur if there is any deterioration in credit metrics.

The principal methodology used in rating SUPERVALU Inc. was the Global Retail Industry Methodology published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies

SUPERVALU Inc., headquartered in Eden Prairie, Minnesota, is the country's third largest supermarket chain, with about 2,437 stores, including 1,336 Save-A-Lot stores of which 939 are licensed to third party-operators. SUPERVALU also has a food distribution business serving more than over 1,950 independent grocery stores in addition to its own stores. The company's annual sales are approximately $35 billion.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

ion.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Manoj Chadha
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades SUPERVALU's CFR to B3; outlook changed to negative
No Related Data.

 

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