MOODY'S LOWERS JITNEY-JUNGLE STORES OF AMERICA INC'S BANK FACILITY TO B2, SR UNSEC NOTES TO Caa1, AND SR SUB NOTES TO Caa3
Moody's Investors Service lowered Jitney-Jungle Stores of America Inc.'s ratings as follows:
$150 million secured syndicated bank facility to B2 from B1;
$200 million senior unsecured notes, due 2006, to Caa1 from B3;and
$200 million senior subordinated notes, due 2007, to Caa3 from Caa1.
Jitney-Jungle Stores of America Inc.'s senior implied rating is lowered to B3 from B2, and the outlook remains negative.
The company's weak operating performance, ongoing high financial leverage, and moderate liquidity prompted the rating action. We have revised our expectations and believe that debt protection measures will remain tight through the intermediate term. The ratings recognize that management has outlined a strategy to stabilize the company's deteriorating operations, arranged a new term loan facility to buttress its tight liquidity, and has plans to further improve its liquidity position by selling non essential assets. But the ratings also consider the challenges the company will face executing these plans in an intensely competitive environment.
The negative rating outlook considers that the company is at a critical stage, and failure to achieve improvement in the near term could lead to further rating downgrades.
The company has arranged a new $50 million term loan facility which provides much needed liquidity (net increase in credit available is approximately $37 million, given the $12.3 million reduction in the syndicated bank facility to $150 million). This new term loan has a second lien behind the bank credit facility and does not dilute collateral protection provided to the existing senior lenders. The B2 rating on the $150 million revolving credit facility considers the ongoing collateral protection in a distressed scenario.
The Caa1 rating on the senior unsecured notes continues to recognize that, while the senior notes are guaranteed by the company's subsidiaries, the notes are effectively subordinated to a material amount of secured debt.
The Caa3 rating on the senior subordinated notes considers the contractual subordination of these notes and the potential for material impairment in a distressed scenario. Given the weakness in the company's credit profile and the uncertainty associated with the company' turnaround strategy, these notes have been lowered two rating categories.
Debt levels have risen over the last several months as trade support for inventory declined and the company drew its revolving credit facility to purchase inventory and to make the March 1999 bond coupon payments. With the new $50 million term loan, credit availability under its syndicated bank line increased to more than $50 million. We believe that the company can increase its trade credit over time so long as a substantial portion of the revolving credit remains available. With the recent amendments to the financial covenants in its bank facility, the company should have adequate flexibility.
Debt totaled $623 million (including about $77 million of capitalized leases) at the second quarter ended June 1999 (5.3 times trailing EBITDA). We expect that debt levels will continue to rise over the next several months, and with EBITDA likely to decline from the LTM level, we anticipate debt exceeding 6.0 times EBITDA in coming periods. The company could reduce its debt burden by selling nonessential assets (moderate delevering is anticipated in the ratings).
Jitney Jungle Stores of America, Inc., headquartered in Jackson, Mississippi, operates 196 supermarkets and 54 gasoline stations across Mississippi, Tennessee, Arkansas, Louisiana, and Florida, as well as ten liquor stores in Florida.
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