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Rating Action:

MOODY'S CONFIRMS RATINGS OF THE KROGER CO. (SENIOR UNSECURED AT Baa3); PLACES RATINGS OF FRED MEYER, INC. ON REVIEW FOR POSSIBLE UPGRADE

19 Oct 1998
MOODY'S CONFIRMS RATINGS OF THE KROGER CO. (SENIOR UNSECURED AT Baa3); PLACES RATINGS OF FRED MEYER, INC. ON REVIEW FOR POSSIBLE UPGRADE Moody's Investors Service confirmed the ratings of The Kroger Co. and placed on review for possible upgrade the ratings of Fred Meyer, Inc. following the announcement that the two companies will merge in a stock transaction to create the largest supermarket chain in the United States. The confirmation is based on the very significant operational strength, market share and geographic coverage of the merged entity, as well as the negative impact on Kroger's debtholder protection measures upon the assumption of Fred Meyer's heavy debt load. The review of the ratings of Fred Meyer will focus on the degree of support that will be provided for its debt by the combined entity. The rating outlook for Kroger was changed to stable from positive.


Ratings Confirmed:

The Kroger Co.:

Senior unsecured notes and certificates, bank credit facility, MTN program, and industrial revenue bonds at Baa3.

Senior subordinated notes and debentures at Ba2.

Senior unsecured shelf registration at (P)Baa3

Senior subordinated and subordinated shelf at (P) Ba2.

Preferred stock shelf at (P) "ba2"


Ratings on review for possible upgrade:

Fred Meyer, Inc.:

Guaranteed senior notes, guaranteed senior secured bank revolving credit agreement and term loan agreement, and synthetic lease facilities at Ba2.

Shelf at (P) Ba2.




Rating outlook:

"Stable. Kroger is appropriately positioned at its current rating level. Moody's expects that debtholder protection measures will be quickly restored as financial benefits are realized from enhanced market share, improved leverage with vendors and synergistic cost savings."


The combination of Kroger, already the most geographically diverse chain, with Fred Meyer, a major operator in the West, will create a nationwide supermarket chain with combined annual sales of about $43 billion and about 2200 stores in 31 states. The merged company, to be called The Kroger Co., will have the number one or number two share in 33 of the largest markets in the U.S. The expanded Kroger will thus be a much more formidable player in the fiercely competitive grocery industry.

In addition to enhanced market share, the merged company will have improved leverage with vendors and opportunities for synergistic cost savings, estimated at $225 million p.a. within three years. About $75 million of cost savings should be achieved in the first year. Its expertise and clout in marketing, technology, logistics, manufacturing and distribution will give Kroger a very significant competitive advantage. The fact that Kroger and Fred Meyer have little current geographic overlap should ease the usual challenges of consolidation, as the merged company will not have to deal with many instances of duplication.

Kroger will assume Fred Meyer's heavy debt load of about $5 billion. Moody's anticipates that the profitability and cash flow generation of the combined operations will allow rapid improvement in debtholder protection measures, which are expected to be appropriate from the outset for Kroger's rating levels.

Headquartered in Cincinnati, The Kroger Co. operates about 1398 stores and 802 convenience stores throughout the Midwest and Southeast. Fred Meyer, Inc. operates about 800 food and general merchandise stores in 12 Western states and is headquartered in Portland, Oregon.

No Related Data.
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