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Rating Action:

Moody's Upgrades Dollarama's CFR to Ba2; Will Withdraw All Ratings

15 Jul 2010

Toronto, July 15, 2010 -- Moody's Investors Service upgraded the Corporate Family rating (CFR) of Dollarama Group Holdings L.P. ("Dollarama") to Ba2 from Ba3, affirmed the company's Probability of Default rating (PDR) at Ba3 and also affirmed its speculative grade liquidity rating at SGL-2 (indicating good liquidity). The rating outlook is stable. Concurrently, Moody's withdrew Dollarama's B2 senior subordinate rating as well as the Ba1 senior secured rating of Dollarama's subsidiary, Dollarama Group L.P. ("Group") as those related obligations have been fully repaid with proceeds from a new credit facility that Moody's has not been asked to rate. Moody's will withdraw Dollarama's PDR and SGL ratings now and will withdraw its CFR in the next few days. Please refer to www.moodys.com for Moody's Withdrawal Policy.

Upgrades:

..Issuer: Dollarama Group Holdings L.P.

....Corporate Family Rating, Upgraded to Ba2 from Ba3 (will be withdrawn in next few days)

Withdrawals (Now):

..Issuer: Dollarama Group Holdings L.P.

....Senior Subordinated Regular Bond/Debenture, Withdrawn, previously rated B2, LGD5, 84%

....Probability of Default Rating, Withdrawn, previously rated Ba3

....Speculative Grade Liquidity Rating, Withdrawn, previously rated SGL-2

..Issuer: Dollarama Group L.P.

....Senior Secured Bank Credit Facility, Withdrawn, previously rated Ba1, LGD2, 24%

....Outlook, Changed To Rating Withdrawn From Stable

The upgrade to Dollarama's CFR reflects Moody's view that Bain Capital's further reduction in its ownership of Dollarama's parent, Dollarama Inc ("DI") lessens the likelihood that Bain will seek to limit any further improvement to Dollarama's capital structure. Bain has now reduced its ownership in DI to 30% from almost 60% following completion of DI's initial public offering in late 2009. Moody's had cited Bain's majority ownership position in DI as a factor that constrained its ratings as Bain had historically sought to maximize its returns in Dollarama by maintaining adjusted leverage close to 6.5x compared to leverage of roughly 4x currently. Dollarama's PDR has been affirmed to reflect the change in its capital structure, which is now comprised of one class of first lien senior secured bank debt. The one notch differential between the company's CFR and PDR is consistent with the application of Moody's loss-given-default methodology.

Dollarama's Ba2 rating considers its leading market position in a segment of retailing that is relatively resilient to economic trends. These favorable attributes are further complemented by the company's direct sourcing expertise, which contributes to produce an operating margin that is substantially superior to its peers. Moreover, Moody's expects the company's operating results should continue to trend favorably through the near term driven in part by its merchandising initiatives and value-oriented customer behavior. Lastly, the rating incorporates Moody's belief that Dollarama is likely to balance the use of its free cash flow between debt reduction and expansion objectives in a manner that preserves the improvement in its capital structure that has resulted from the IPO. The rating is constrained by the competitive retail environment, inventory write-down risks related to the company's lack of a sophisticated inventory management system historically, the potential that margin pressure may develop over time and the company's evolving financial policies.

Moody's last rating action on Dollarama was on December 21, 2009 when its Corporate Family rating was upgraded to Ba3 with a stable outlook from B1 with a positive outlook.

The principal methodology used in rating Dollarama was Moody's Global Retail Industry rating methodology, published in December 2006 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Dollarama Group Holdings L.P. is the parent of Dollarama Group L.P, which is a leading extreme value retailer operating 611 stores in Canada with annual revenue of roughly C$1.3 billion. Both companies are headquartered in Montreal, Canada and are subsidiaries of publicly-traded Dollarama Inc.

Toronto
Darren M. Kirk
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Toronto
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Moody's Upgrades Dollarama's CFR to Ba2; Will Withdraw All Ratings
No Related Data.
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