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Rating Action:

MOODY'S AFFIRMS THE RATINGS OF THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. (SENIOR IMPLIED AT B3); OUTLOOK CHANGED TO DEVELOPING

17 May 2005
MOODY'S AFFIRMS THE RATINGS OF THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC. (SENIOR IMPLIED AT B3); OUTLOOK CHANGED TO DEVELOPING

Approximately $1 Billion in Debt Securities Affected

New York, May 17, 2005 -- Moody's Investors Service affirmed the ratings of The Great Atlantic & Pacific Tea Company, Inc. ("A&P"), but changed the rating outlook to developing from negative. The outlook change is based on Moody's expectation that the recently announced strategic restructuring will materially impact the company's weak credit metrics; whether the post-restructuring metrics are stronger or weaker will depend upon the completion of a number of initiatives and A&P's future financial policy decisions regarding the application of asset sale proceeds.

A&P is exploring potential strategic transactions to monetize the value of its profitable Canadian business and divest its money losing Farmer Jack and Food Basics operations in Michigan and Ohio. The resulting smaller scale A&P will be concentrated in the Northeast and will be able to focus on expanding its fresh and discount retail formats and on improving operating efficiency.

The sale of the successful Canadian operations, for example, could result in significant proceeds. However, the disposal of Canada would also greatly reduce consolidated returns -- about 57% of fiscal 2004 consolidated EBITDA of $256 million, adjusted for non-operating items, was generated by Canada. The disposal of the Midwest operations will modestly boost profitability, given its negative adjusted EBITDA of $20 million in fiscal 2004. Any cash proceeds from these dispositions could potentially be applied to debt reduction, or shareholder enhancement, or accelerated remodeling capital expenditures or other long-term investments in the business.

The realization of large cash proceeds that are applied primarily to debt reduction, combined with plans to bolster profit margins in the core Northeast stores, could put upward pressure on the ratings. Conversely, the failure to complete any restructuring initiatives, or further erosion in sales and earnings in the US businesses, could result in the outlook being changed back to negative.

Ratings affirmed:

The Great Atlantic & Pacific Tea Company, Inc.

Senior implied at B3

Issuer rating at Caa1

Senior secured and guaranteed bank agreement at B2

Senior unsecured notes at Caa1

Multi-seniority shelf at (P)Caa1 for senior, (P)Caa2 for subordinated, (P)Caa2 for junior subordinated, and (P)Caa3 for preferred stock.

Speculative Grade Liquidity Rating of SGL-3

A&P Finance I, A&P Finance II and A&P Finance III:

Trust preferred securities shelf at (P)Caa2.

Headquartered in Montvale, New Jersey, The Great Atlantic & Pacific Tea Company, Inc. operates 650 supermarkets in 10 states, the District of Columbia and Ontario, Canada. Sales for the fiscal year ended February 26, 2005 were approximately $10.8 billion.

New York
Angela Jameson
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Elaine E. Francolino
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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