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Rating Action:

MOODY'S ASSIGNS Baa3 RATING TO NEW SENIOR UNSECURED GUARANTEED NOTES BEING ISSUED UNDER RULE 144A BY DELHAIZE AMERICA, INC. OUTLOOK IS STABLE.

28 Mar 2001
MOODY'S ASSIGNS Baa3 RATING TO NEW SENIOR UNSECURED GUARANTEED NOTES BEING ISSUED UNDER RULE 144A BY DELHAIZE AMERICA, INC. OUTLOOK IS STABLE.

Approximately $2 Billion of Debt Securities Affected

New York, March 28, 2001 -- Moody's Investors Service assigned a rating to the new senior unsecured notes being issued by Delhaize America, Inc. under Rule 144A and confirmed the company's existing ratings based on the strong strategic fit of the Hannaford stores, the valuable supermarket franchises of the two entities and the expectation that synergistic cost savings and incremental revenue opportunities will be realized. The ratings also incorporate the increase in leverage from the acquisition of Hannaford Bros. Co., as well as Delhaize America's holding company structure in the United States and the greater risk of future acquisitions in this consolidating industry. The rating outlook is stable, reflecting Moody's expectation that post-acquisition debt protection measures will improve.

Ratings assigned:

Senior unsecured notes being issued under Rule 144A, guaranteed by subsidiary Food Lion, LLC., at Baa3.

Ratings confirmed:

Senior unsecured debentures, notes and MTN program, to be guaranteed by Food Lion, LLC., at Baa3.

Senior unsecured shelf, to be guaranteed by Food Lion, LLC. at (P)Baa3.

Commercial paper, to be guaranteed by Food Lion, LLC., at Prime-3.

Delhaize America owns Food Lion, Kash n' Karry and Hannaford, and is generally among the top three supermarkets in its major markets. The acquisition of Hannaford in July 2000 extended Delhaize America's franchise up the East Coast and strengthened its market penetration. The limited overlap of the companies' operations and their common everyday low pricing strategy have eased some of the usual challenges of combination. Delhaize America's marketing and cost containment skills are benefiting Hannaford. Hannaford's expertise in information technology and logistics are enhancing Delhaize America's.

At the end of fiscal year 2000, the combined company's comparable store sales rose a modest 0.8%, but the fourth quarter comparable store sales did increase by 2.1%. About $10 million of benefits from best practices and synergies was achieved in the fourth quarter. (The target for synergistic cost savings remains $75 million by year three.) Delhaize America continues to focus on boosting sales and gross margin at all banners, rather than taking one-time cost cuts. Leverage is high, however, with funded debt of over $3.3 billion at fiscal 2000. About $2.4 billion of this debt is a 364 day term loan that bridge financed the Hannaford acquisition. The intense competition in the company's major trade areas could continue to challenge its ability to boost sales and margins.

The proceeds from the new senior unsecured notes being issued under Rule 144A, along with a new $700 million senior unsecured bank term loan, will refinance existing debt. The notes are being offered and sold privately without registration under the Securities Act of 1933 (the Act), under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The notes have been structured to permit resale under Rule 144A.

Delhaize America is a holding company and the obligor of almost all consolidated debt; operations are conducted by wholly owned subsidiaries. The company's major operating subsidiary is Food Lion, LLC., which guarantees the new public and bank debt of Delhaize America, and which will guarantee the prior existing public and bank debt of Delhaize America. Should Food Lion not guarantee prior existing debt, the ratings of the existing debt could be lowered.

Delhaize Group currently owns 56% of Delhaize America. In November 2000, the two companies announced a share exchange agreement, expected to be consummated by mid 2001. If the share agreement is consummated, Delhaize America will become a wholly owned subsidiary of Delhaize Group. Moody's does not anticipate that the increased ownership by Delhaize Group will result in a material change in operating or financial policy.

Headquartered in North Carolina, Delhaize America, Inc. is the country's fifth largest supermarket company, operating about 1420 supermarkets along the East Coast.

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

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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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