MOODY'S ASSIGNS B2 RATING TO JITNEY-JUNGLE STORES OF AMERICA, INC.'S SENIOR NOTES
New York, 02-22-96 -- Moody's Investors Service assigned a debt rating of B2 to Jitney-Jungle Stores of America, Inc.'s senior notes, due 2006. The rating reflects the company's high leverage, its geographic concentration, competitive pressures in some of its larger markets, and the structural subordination of the notes to secured debt. The rating also recognizes the company's stable sales and earnings, strong market share in Mississippi, modern store base, and manageable debt maturities.
The notes are being issued as part of a leveraged recapitalization in which an investor group organized by Bruckmann, Rosser, Sherill & Co., L.P. will acquire a fully diluted equity interest of 71.25% in the privately held company. The proceeds, together with bank borrowings, will finance a $300 million dividend to the current stockholders; the repayment of $38 million in existing debt; and the payment of deferred compensation, transaction fees, and expenses.
Jitney-Jungle is the largest supermarket chain in the state of Mississippi, with a 52% market share in Jackson, its primary market, and a 25% share throughout the state. During its 76 years of operation, it has developed a strong consumer franchise and has obtained locations in prime, easily accessible sites. The company began opening stores in other Southeastern states during 1989, and now has an 8% market share in Memphis and an 11% share in Little Rock. Its three formats--conventional Jitney-Jungle stores for rural markets, larger conventional Jitney Super Center stores for metropolitan markets, and Sack and Save Food & Drug discount stores--provide the flexibility to adapt to diverse demographics and competition.
Although 40% of the company's stores operate in towns and rural markets that are too small to support several competitors, the company competes with large supermarket chains and supercenters in its larger markets. Despite the company's efforts to compete through superior customer service and selection, competitive openings in the larger markets periodically force it to intensify its promotional activities, which may temporarily lower its margin.
The company's 5.4% EBITDA margin for the 12 months ended January 6, 1996, is above the industry average of 5.0%. Moody's expects cash flow to improve through savings from a renegotiated supply contract, reduction in overhead and print media advertising, improvements in labor scheduling and inventory management resulting from the installation of new technology, and the expansion of company owned and operated gasoline stations on existing store sites. Moody's also noted that capital expenditure requirements are moderated by the company's modern store base, with 85% of the stores new or remodeled in the past five years.
Since the transaction is a leveraged recapitalization, equity will decline to negative $166.1 million from $148.9 million, reflecting the treatment of the merger consideration as a dividend and the absence of asset write-ups. Without the expected cost savings, pro forma adjusted debt/EBITDAR on a last 12 months basis as of January 6, 1996, is 5.4 times and pro forma EBITDAR coverage of interest and rent is 1.6 times. The achievement of the $5.6 million cost savings that the company has identified should lower pro forma adjusted debt/EBITDAR to 5 times and increase coverage of interest and rent to 1.7 times.
The notes are structurally subordinated to secured bank debt and capital leases that comprise 35% of pro forma debt. As part of the transaction, the company plans to enter into a five-year, $100 million reducing revolving credit facility (rated B1) with a $20 million sublimit for letters of credit. Availability will be determined by a borrowing base equal to the sum of 60% of eligible inventory and up to $45 million of supplemental availability. The facility will be secured by a first priority security interest in most of the company's assets and will be guaranteed by all of its subsidiaries. Moody's noted that the subsidiaries will also guarantee the senior notes.
Jitney-Jungle, headquartered in Jackson, Mississippi, operates 104 supermarkets in six southeastern states under the tradenames of "Jitney-Jungle" and "Sack and Save." The company also operates 43 gasoline stations at selected supermarket sites under the tradename of "Pump And Save."
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