CORRECTION TO RATINGS: MOODY'S PLACES RATINGS OF KMART CORPORATION UNDER REVIEW FOR POSSIBLE DOWNGRADE (SENIOR UNSECURED AT Baa3)
New York, November 06, 2001 -- Moody's Investors Service has placed the ratings of Kmart Corporation on review for possible downgrade based on the continued challenge that the company faces in significantly improving profitability, inventory efficiency, and cash flow as it seeks to revitalize its business in a difficult competitive and economic environment. The review will focus on the financial impact, both positive and negative, from initiatives that are underway to improve the operations and working capital management and the potential for these improvements to have a significant benefit in reducing debt levels in a reasonable time-frame. The review will also focus on understanding the sustainability of improvements that have already been made to its operations and the timing of further potential improvements.
Ratings under review for downgrade are:
Kmart Corporation - senior unsecured debt, medium term notes and its issuer rating at Baa3; lease certificates at Ba1; unsecured senior debt shelf registration at (P) Baa3;
subordinated debt shelf registration at (P)Ba1; preferred stock shelf registration to (P)Ba1, and the company's rating for commercial paper at Prime-3.
Kmart Financing I - Guaranteed Trust Convertible Securities at (P)Ba1; preferred stock shelf registration at (P)Ba1.
Kmart Financing II, III and IV - Preferred stock shelf registrations at ((P)Ba1.
Since the summer of 2000, Kmart has been in the midst of a very complicated and thorough turnaround effort in order to revitalize the company after years of operational stagnation and loss of competitiveness against its peers. To date, Moody's recognizes that the new management team at Kmart has made significant progress already in achieving several of its operational objectives which can be evidenced by Kmart's improved in-stock position at the store level, higher customer-satisfaction scores, and progress in supply chain management. However, these operational improvements have not yet delivered the kind of overwhelming evidence, namely significant improvement in profit levels, that would allow us to view a decline in debt levels as an imminent event.
While we remain confident in the company's liquidity and in its ability to meet its financial obligations in the near term, longer term we are concerned that it may take some time for debt protection measures to return to the higher levels of the recent past.
Kmart Corporation, headquartered in Troy, Michigan is one of the largest discount retailers in the United States.
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