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Rating Action:

Moody's upgrades Ahold Delhaize to Baa1; outlook stable

19 Feb 2018

NOTE: On February 20, 2018, the press release was corrected as follows: the following paragraph was added after the List of Affected Ratings: “The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.” Revised release follows.

London, 19 February 2018 -- Moody's Investors Service, ("Moody's") has today upgraded to Baa1 from Baa2 the long-term issuer ratings of Koninklijke Ahold Delhaize N.V. (Ahold Delhaize). Moody's has also upgraded to Baa1 from Baa2 the senior unsecured ratings of Ahold Delhaize as well as of its 100%-owned and fully guaranteed subsidiary Ahold Finance U.S.A., LLC, Delhaize Le Lion / De Leeuw Comm. VA and Delhaize America, LLC. Concurrently, Moody's has affirmed Ahold Delhaize's short term ratings at Prime-2. The outlook on the ratings changed to stable from positive.

"Our decision to upgrade the ratings of Ahold Delhaize reflects our view that it will continue to grow its earnings thanks to the synergies arising from the Ahold-Delhaize merger and despite fierce competition in the US and in Belgium" says Vincent Gusdorf, a Moody's Vice President - Senior Analyst and lead analyst for Ahold Delhaize. "The upgrade also factors in our expectation that the group will adapt shareholder remuneration and the funding of potential acquisitions to maintain credit ratios commensurate with its new rating," he added.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Today's upgrade factors in Moody's view that Ahold Delhaize's Moody's-adjusted EBITDA will rise by about 6% annually over the next two years thanks to synergies. The group's margin should reach about 8.5%-9% by 2019 compared with 8.1% in 2016 (pro forma of the merger). This increase makes the group one of the most profitable food retailers that Moody's rates in Western Europe, alongside Distribuidora Internacional de Alimentacion (Baa3 stable). Moody's believes that Ahold Delhaize will achieve its target of EUR750 million of synergies by 2019, of which EUR250 million will finance price cuts. The group has already achieved EUR250m of synergies net of price cuts in 2017.

Ahold Delhaize's competitive position is holding up well in the US despite tough operating conditions. The group competes with large retailers such as Wal-Mart Stores, Inc. (Aa2 stable), the Kroger Co. (Baa1 stable), Target Corporation (A2 stable), and increasingly with German discounters Aldi and Lidl. However, the market shares of Ahold Delhaize's US banners remained stable or improved in 2017. Moody's expects that the group will keep performing well in the Netherlands, which should offset any lack of improvement in Belgium or Greece.

On the downside, high shareholder remuneration constrains the group's credit quality. Ahold Delhaize announced in November 2017 a two-fold increase in share buybacks to EUR2 billion in 2018. This decision will come on top of a dividend payout ratio of 40%-50%, which translated into EUR0.7 billion worth of dividends in 2017. Although shareholder remuneration should remain elevated, Moody's expects the group to adjust it to maintain stable credit ratios commensurate with the Baa1 rating. As a result, Moody's expects that Ahold Delhaize would reduce share buybacks in case of a large acquisition and that it would use its robust cash flow generation to deleverage if necessary.

Moody's views Ahold Delhaize's liquidity as excellent. As of 1st of October 2017, the group had EUR3.7 billion of cash and cash equivalents in addition to an undrawn EUR1 billion committed credit facility due in 2022. Its debt maturity profile is well balanced, with EUR400 million of bond debt maturing in 2018 and EUR110 million in 2019. On the downside, Moody's expects the group to return part of its large cash position to shareholders in 2018 because the EUR2 billion share buyback programme will exceed free cash flow.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's opinion that Ahold Delhaize will calibrate its financial policy to maintain credit ratios commensurate with the Baa1 rating. It also factors in our view that synergies stemming from the Ahold-Delhaize merger will bolster profitability and offset earnings pressure stemming from the highly competitive market conditions in the United States and in Belgium.

WHAT COULD CHANGE THE RATING UP/DOWN

Upgrade prospects are limited at this stage. However, Moody's could upgrade Ahold Delhaize ratings if its debt/EBITDA fell close to 2.5x and its Retained Cash Flow/net debt remained at about 30%, on a Moody's adjusted basis, for a prolonged period of time. An upgrade would also require substantial growth in earnings on the back of a milder competitive environment and higher-than-expected productivity gains. Any positive rating action would hinge on management's commitment to maintaining stronger credit ratios, with a track record of more balanced shareholder remuneration.

Conversely, Moody's could downgrade Ahold Delhaize's ratings if its Moody's adjusted debt/EBITDA exceeded 3.5x or its Retained Cash Flow/net debt fell to about 20%. Moody's could also lower the group's ratings if financial policy became more aggressive or if profitability weakens, for instance because of fiercer competition and market share losses in the US or in the Benelux.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: Ahold Finance U.S.A., LLC

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Delhaize America, LLC

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Delhaize Le Lion / De Leeuw B.V.

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Koninklijke Ahold Delhaize N.V.

.... Issuer Rating, Upgraded to Baa1 from Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

Affirmations:

..Issuer: Koninklijke Ahold Delhaize N.V.

.... Issuer Rating, Affirmed P-2

Outlook Actions:

..Issuer: Ahold Finance U.S.A., LLC

....Outlook, Changed To Stable From Positive

..Issuer: Delhaize America, LLC

....Outlook, Changed To Stable From Positive

..Issuer: Koninklijke Ahold Delhaize N.V.

....Outlook, Changed To Stable From Positive

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Vincent Gusdorf
Vice President - Senior Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yasmina Serghini
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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