Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Already a customer?
LOG IN
Don't want to see this again?
REGISTER
Accept our to continue to Moodys.com:
PLEASE READ
AND SCROLL DOWN!
By clicking “I AGREE” [at the end of this document],
you indicate that you understand and intend these terms and conditions to be
the legal equivalent of a signed, written contract and equally binding, and
that you accept such terms and conditions as a condition of viewing any and all
Moody’s information that becomes accessible to you [after clicking “I AGREE”] (the
“Information”). References herein to “Moody’s” include Moody’s
Corporation, Inc. and each of its subsidiaries and affiliates.
Terms of One-Time Website Use
1. Unless
you have entered into an express written contract with Moody’s to the contrary,
you agree that you have no right to use the Information in a commercial or
public setting and no right to copy it, save it, print it, sell it, or publish
or distribute any portion of it in any form.
2. You
acknowledge and agree that Moody’s credit ratings: (i) are current opinions of
the future relative creditworthiness of securities and address no other risk; and
(ii) are not statements of current
or historical fact or recommendations to purchase, hold or sell particular
securities. Moody’s credit ratings and
publications are not intended for retail investors, and it would be reckless
and inappropriate for retail investors to use Moody’s credit ratings and
publications when making an investment decision. No
warranty, express or implied, as the accuracy, timeliness, completeness,
merchantability or fitness for any particular purpose of any Moody’s credit
rating is given or made by Moody’s in any form whatsoever.
3. To the extent permitted by law, Moody’s and its directors,
officers, employees, representatives, licensors and suppliers disclaim
liability for: (i) any indirect, special, consequential, or incidental losses
or damages whatsoever arising from or in connection with use of the
Information; and (ii) any direct or compensatory damages caused to any person
or entity, including but not limited to by any negligence (but excluding fraud
or any other type of liability that by law cannot be excluded) on the part of
Moody’s or any of its directors, officers, employees, agents, representatives,
licensors or suppliers, arising from or in connection with use of the
Information.
4. You agree to read [and
be bound by] the more detailed disclosures regarding Moody’s ratings and the
limitations of Moody’s liability included in the Information.
5. You agree that any disputes relating to this agreement or your use of
the Information, whether sounding in contract, tort, statute or otherwise,
shall be governed by the laws of the State of New York and shall be subject to
the exclusive jurisdiction of the courts of the State of New York located in
the City and County of New York, Borough of Manhattan.
I AGREE
31 Oct 2002
MOODY'S CONCLUDES REVIEW OF GREAT ATLANTIC & PACIFIC TEA CO. BY LOWERING ALL RATINGS ; OUTLOOK IS NEGATIVE
Approximately $1.2 Billion of Debt Affected.
New York, October 31, 2002 -- Moody's Investors Service lowered all ratings of The Great Atlantic &
Pacific Tea Company, Inc ("A&P") as follows:
$425 million secured revolving credit facility to Ba3 from Ba2,
$ 22 million of 7.70% senior notes (2004) to B3 from
B2,
$242 million of 7.75% senior notes (2007) to B3 from
B2,
$275 million of 9.125% senior notes (2011) to B3
from B2,
$200 million of 9.375% senior notes (2039) to B3
from B2,
Senior unsecured shelf to P(B3) from P(B2),
Subordinated shelf to P(Caa1) from P(B3),
Junior subordinated shelf to P(Caa1) from P(B3),
Preferred stock shelf to P(Caa2) from P(Caa1),
Preferred trust securities issued by A&P Finance I, A&P
Finance II, and A&P Finance III to P(Caa1) from P(B3),
Senior implied rating to B2 from B1, and the
Long term issuer rating to B3 from B2.
In spite of our opinion that the company has a reasonable amount of liquidity
at least for the intermediate term, the downgrade was prompted by
the long-term decline in the company's competitive position,
inability to make progress at improving weak operating margins,
and the continued negative free cash flow. The rating outlook is
negative. This concludes the review that commenced on August 5,
2002.
The ratings consider the company's leveraged financial condition,
substandard operating margins (in spite of the relatively high gross margins),
and the competitive nature of the supermarket industry. The weak
return on assets, which causes us to conclude that additional asset
rationalization may be necessary, and the historical inability to
improve operations or the balance sheet, in spite of strategy and
management changes, are also reflected in the ratings. Difficulties
in achieving operating synergies (partially caused by the widely scattered
markets in which the company operates) and the need to use a significant
proportion of expected free cash flow for store upgrades and information
technology investments also impact the ratings.
However, the relatively high gross margins (resulting from high
perimeter department sales), the company's decent liquidity position,
and incremental improvements in working capital efficiency benefit the
company. The ratings also recognize that the company has the #1
or #2 position in its four most important markets (Detroit,
New Orleans, the New York Metro area, and Toronto),
The negative outlook considers the possibility that ratings may decline
if the regions outside of Ontario and New York do not meaningfully contribute,
overall results are further affected by the heavy promotional activity
around New York, or return on assets does not improve. While
the company currently has decent liquidity, the necessity to make
significant additional drawings on the credit facility would impact Moody's
view of the risks facing the company. Besides a sustained improvement
in leverage, substantial improvements towards industry operating
norms will be important to progress up the rating scale.
The Ba3 rating on the secured revolving credit facility ($340 million
available to The Great Atlantic and Tea Company, Inc. and
$85 million available to The Great Atlantic & Pacific Company
of Canada) considers that this debt, besides enjoying guarantees
of the company's operating subsidiaries, is secured by a borrowing
base comprised of inventory and owned real estate. The March 2002
amendment extended the maturity date to June 2005 and the October 2002
amendment relaxed the covenant for minimum fixed charge coverage.
Moody's believes that the lenders are well protected by collateral value
and the structure of the facility. We expect that much of the credit
facility will remain undrawn even during seasonal inventory peaks.
Moody's observes that the company had cash on hand of $146 million
and revolving credit availability of $255 million on September
7, 2002 and, with the most recent amendment, likely
will remain in compliance with all bank agreement covenants over the medium
term.
The B3 rating on the unsecured notes considers that this debt is issued
at the holding company level and does not receive guarantees from the
operating subsidiaries. These unsecured notes are effectively subordinate
to significant operating company obligations including the bank facility
and trade accounts payable. Except for the relatively small issue
due in 2004, none of the company's bonds mature before 2007.
Moody's believes that A&P's gross margins of 28.5% in
the first 28 weeks of Fiscal 2003 were better than the supermarket industry
average, even though margins declined slightly from 28.8%
in the same period of Fiscal 2002 as supermarket marketing efforts intensified
(particularly around the New York Metro area). However, operating
margins are low, even for the low-margin supermarket industry.
In Moody's view, the company enjoys high gross margins due to the
relatively high proportion of perimeter department sales (ie. bakery,
deli, seafood) but operating margins fall below industry norms because
of sizable fixed costs (ie. labor) for many low-volume stores.
Calculations for the company's debt protection measures can significantly
vary, according to the treatment of special charges. In general,
Moody's considers the special charges at A&P to be an ongoing cost
of doing business since they have occurred every year for several years
and, in our opinion, circumstances may require additional
special charges in future periods. The company has taken about
$644 million in operating special charges over the past 4 1/2 years
(slightly offset by $61 million in extraordinary demutualization
income). If special charges and extraordinary income are not considered
part of operating cash flow, lease adjusted leverage has trended
over the past several years to 7.2 times in September 2002 from
4.0 times in February 1998. Going forward, Moody's
expects that the company's business plan for a relatively modest program
of new stores and major remodels will require the reinvestment of virtually
all cash flow from operations.
The company operates in several different regions of North America.
The regions around Detroit, New Orleans, Toronto, and
the New York Metro area provide about 80% of the company's revenues,
while almost all operating profit has historically come from the New York
Metro and Toronto regions. Over the past several quarters as the
economic slowdown has impacted several industries important to the New
York Metro economy, grocery retailer promotional activity has impacted
A&P's margins and cash flow. With four New York Metro area
competitors having similar market shares (ShopRite, A&P,
Pathmark (senior implied Ba3), and Stop & Shop (senior unsecured
of parent Ahold Baa1)), we expect that promotional activities designed
to maintain customer appeal will remain unusually intense even for the
highly competitive supermarket industry.
The Great Atlantic & Pacific Tea Company, Inc.,
headquartered in Montvale, New Jersey, operates 692 supermarkets
in 15 states, the District of Columbia, and Ontario under
the following trade names: A&P, Waldbaum's, The
Food Emporium, Super Foodmart, Super Fresh, Farmer Jack,
Kohl's, Sav-A-Center, Dominion, The Barn
Markets, Food Basics, and Ultra Food & Drug. The
parent of the German supermarket operator Tengelmann owns 57% of
A&P.
New York
Andris G. Kalnins
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Richard Baldwin
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY'S CREDIT RATINGS , ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT.
MOODY'S CREDIT RATINGS , ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.
To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
|
|
