Approximately $2.5 Billion of Debt Securities Affected
NOTE:ON July 20, 2012 the Press Release was revised as follows: The fourth line under the following ratings are upgraded: in the below debt list has been corrected to read: $451 million senior subordinated notes to Ba3 (LGD 6, 97%) from B1 (LGD 5, 86%. Revised release follows:
New York, April 13, 2012 -- Moody's Investors Service today upgraded Dollar General Corporation's
Corporate Family Rating and Probability of Default Rating to Ba1 from
Ba2. The Speculative Grade Liquidity rating of SGL-1 was
affirmed. The rating outlook is positive. This rating action
concludes the review for possible upgrade initiated on March 22,
2012.
RATINGS RATIONALE
The upgrade with a positive outlook reflects that Buck Holdings,
LP controlled by Kohlberg Kravis Robert's ("KKR") has
reduced its equity ownership in Dollar General below 50% to approximately
44%. Thus triggering a change in the composition of the
board of directors such that KKR no longer has the majority seats on the
board.
The upgrade also acknowledges that Dollar General's operating performance
and credit metrics are expected to remain strong. As of year ending
February 3, 2012, Dollar General's debt to EBITDA was
3.0 times and EBITA to interest expense is 4.4x.
Furthermore, the upgrade follows Dollar General's refinancing
approximately $880 million of its term loan which extended its
maturity to July 2017 from July 2014.
"Dollar General continues to strengthen its capital structure through
the opportunistic refinancing of a portion of its term loan, thus
extending its maturity schedule" said Maggie Taylor, a senior
credit officer with Moody's. "The strengthening of
the capital structure coupled with the reduction of KKR's equity
ownership supports our view that Dollar General continues to apply a balanced
and prudent financial policy."
The following ratings are upgraded:
Corporate Family Rating to Ba1 from Ba2
Probability of Default Rating to Ba1 from Ba2
$311 million senior secured term loan B-2 to Ba2 (LGD 4,
to 68%) from Ba3 (LGD 4, 65%)
$451 million senior subordinated notes to Ba3 (LGD 6, 97%)
from B1 (LGD 5, 86%)
The following ratings are affirmed and LGD point estimates changed:
$779 million senior secured term loan B-1 at Ba1 (LGD 3,
43% from 39%)
$880 million senior secured term loan C at Ba1 (LGD 3, 43%
from 39%)
Speculative Grade Liquidity rating at SGL-1
Dollar General's Ba1 Corporate Family Rating is supported by its
market position as the largest dollar-store chain in the U.S.
Moody's views the dollar store sector favorably and expects that
it will continue to grow given its low price points and its relative resistance
to economic cycles. The rating also reflects Dollar General's
solid credit metrics and its very good liquidity. The rating acknowledges
that Dollar General's earnings are expected to continue to grow
at a healthy rate despite a limited ability to pass on cost pressures
to a price sensitive customer which will limit Dollar General's
gross margin.
Dollar General's ratings are constrained by its geographic concentration.
While operating over 9,900 stores in 39 states, Dollar General
is heavily concentrated in the south, which accounts for approximately
47% of their store base. However, this concentration
risk may slowly dissipate as Dollar General continues to grow its store
count and break ground in new states, much like their recent launch
into California.
In light of the reduction in KKR's equity ownership to below 50%,
the positive outlook reflects that Moody's expects the composition
of the board to likely change over the next twelve to eighteen months
and that the revised board is likely to support balanced and conservative
financial policies.
An upgrade would require Dollar General's board of directors to
evidence support of financial policies which allow the company to maintain
credit metrics consistent with a higher rating over the long term.
An upgrade would also require continued strong operating performance particularly
in light of Dollar General's sizable expansion into California.
Quantitatively, an upgrade would require debt to EBITDA to remain
below 3.0 times and EBITA to interest expense remain above 4.5
times.
Downward rating pressure would result should Dollar General's financial
policies become more aggressive. Ratings could also be downgraded
should Dollar General's operating performance deteriorate or debt
levels increase such that debt to EBITDA is sustained above 4.0
times or EBITA to interest expense falls below 3.5 times.
The principal methodology used in rating Dollar General Corporation 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.
Dollar General Corporation, headquartered in Goodlettsville,
Tennessee, owns and operates over 9,900 extreme value general
merchandise stores. Revenues are over $14.5 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
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for information on (A) MCO's major shareholders (above 5%) and
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Margaret Taylor
VP - Senior Credit Officer
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 upgrades Dollar General's CFR to Ba1; outlook positive
