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Rating Action:

Moody's Downgrades SUPERVALU's CFR to B1 and Senior Debt to B2

08 Dec 2010

New York, December 08, 2010 -- Moody's Investors Service today downgraded the Corporate Family Rating (CFR) of SUPERVALU Inc. to B1 from Ba3, and lowered the ratings of the senior unsecured debt of SUPERVALU and its subsidiaries to B2. The rating outlook is stable. This concludes the review of SUPERVALU and its subsidiaries started on September 8, 2010.

Moody's considers it unlikely that SUPERVALU's performance metrics will meaningfully improve in the near term due to weak industry conditions as well as unique company factors. As a result, Moody's expect that SUPERVALU's credit metrics will remain in the range of debt/EBITDA of 5.0 and interest coverage around 1.3 times. Volatility in performance and credit metrics is likely to continue for an extended period as SUPERVALU implements its turnaround strategy. In Moody's opinion, SUPERVALU's debt maturity schedule is also a rating factor, as the company may need to borrow a meaningful amount under its revolving credit facility in early 2011 to bridge timing differences between upcoming debt maturities in advance of expected operating cash flow. Although management is highly focused on reducing long term debt, Moody's is concerned that pursuing this goal could restrict store investment for some time, potentially hurting the company's competitive positioning. SUPERVALU's capital structure restricts its potential for taking on secured debt, which reduces financing options and therefore inhibits its financial flexibility.

SUPERVALU has launched an ambitious and, in Moody's view, necessary management and operational restructuring plan which was rolled out to managers and employees during the second half of 2010. The goals are to leverage SUPERVALU's scale to reduce costs while focusing on local merchandising and operations to meet the unique needs of each store. Moody's believes that this strategy will ultimately be beneficial to SUPERVALU's long term relevance, but is likely to cause disruption in the stores, employee base, and customer base during the rollout.

RATINGS RATIONALE

The B1 Corporate Family Rating reflectsMoody's expectation that credit metrics will remain weak and somewhat volatile, and that weak operating performance increases the stress of carrying out twin goals of reducing high levels of funded debt while improving the stores' appeal to customers. The ratings also recognize SUPERVALU's weak performance relative to competitors, and the operating and financial risks inherent in carrying out SUPERVALU's operational and management restructuring during a prolonged difficult environment for the entire supermarket sector. Ratings are supported by SUPERVALU's overall size in food retailing and distribution, its long-established regional brands, favorable geographic footprint and store locations, and the growth potential represented by its Sav-A-Lot chain and licensing arrangements.

SUPERVALU's rating outlook is stable, reflecting our expectations that the restructuring efforts will ultimately be successful and that the company will remain a sizable force in food retailing and distribution. We also expect SVU to generate sufficient cash flow to gradually reduce funded debt over time, that metrics will improve as operational changes gain traction. That said, credit metrics will likely remain relatively weak over the near to intermediate term, with the risk of earnings volatility as SUPERVALU continues to refocus its operations.

Over time, ratings could be upgraded if the company's restructuring efforts gain traction and result in a reversal of its revenue and earnings declines, while maintaining the quality of its store base, and an overall strengthening of its debt protection measures. Specifically, an upgrade would require the companyto consistently maintain debt/EBITDA below 4.75 times, and EBITA to interest comfortably above 1.5 times.

SUPERVALU's ratings could be downgraded if there is evidence of deterioration in its market position, as demonstrated by sustained sales and margins trending negative relative to peers. Ratings could also be downgraded if we expected that debt protection measures will weaken such that debt to EBITDA will likely remain above 5.5 times or EBITA to interest below 1.25 times, for a sustained period of time. Ratings could also be downgraded if the company's liquidity were to weaken,

The following ratings have been downgraded and LGD point estimates changed:

Corporate Family Rating to B1 from Ba3

Probability of Default Rating to B1 from Ba3

SUPERVALU Inc. Senior Unsecured Debt (all tranches) to B2 (LGD 4, 58 ) from Ba3 (LGD 4, 57)

SUPERVALU Inc. Senior Unsecured Shelf and MTN programs to (P)B2 (LGD 4,58 ) from (P)Ba3 (LGD 4, 57)

New Albertson's Inc. Senior Unsecured Debt (all tranches) to B2 (LGD 4, 58) from Ba3 (LGD 4, 57)

New Albertson's Inc. Senior Unsecured Shelf and MTN programs to (P)B2 (LGD 4, 58) from (P)Ba3 (LGD 4, 57);

American Stores Co. Senior Unsecured Debt (all tranches) to B2 (LGD 4, 58) from Ba3 (LGD 4, 57)

The principal methodologies used in this rating were Global Retail Industry published in December 2006, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

SUPERVALU Inc., headquartered in Eden Prairie, Minnesota, is the country's third largest supermarket chain, with about 2,370 stores, including 876 Save-A-Lot stores that are licensed to third party-operators. SUPERVALU also has a food distribution business serving more than over 1,900 independent grocery stores in addition to its own stores. The company's annual sales are approximately $38 billion.

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.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Marie Menendez
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades SUPERVALU's CFR to B1 and Senior Debt to B2
No Related Data.
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