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24 May 2007
Moody's upgrades Delhaize America's rating to Baa3
New York, May 24, 2007 -- Moody's Investors Service upgraded Delhaize America's senior
unsecured debt rating to Baa3 from Ba1 based on the implementation of
cross-guarantees between Delhaize America and its Baa3-rated
parent, Etablissements Delhaize Freres et CIE "Le Lion"
(Delaize Group). Delhaize America's corporate family and
probability of default ratings have also been raised to Baa3 from Ba1;
these ratings will be withdrawn, as will the LGD Assessment.
The effect of the cross-guarantees is to establish pari passu treatment
of the debt of Delhaize America and its parent.
The outlook is stable.
Corporate Family Rating to Baa3 from Ba1
Probability of Default Rating to Baa3 from Ba1
Senior unsecured and medium term notes to Baa3 from Ba1 LGD4 (61%)
Delhaize Group's Baa3 rating is underpinned by the company's
low business risk, as evidenced by the company's high share
of food products, its low cash flow seasonality, each quarter's
operating cash flow representing less than 40% of the annual operating
cash flow. The rating also factors in the relatively good geographic
diversification: Delhaize Group is anchored on two home markets,
the US and Belgium, which together represent more than 90%
of group's revenues. It also has a profitable, albeit
much smaller presence in Greece, Romania, and Indonesia.
The Baa3 rating also incorporates Delhaize Group's scale as evidenced
by its USD18 billion in revenues, in line with the US retail operations
of Ahold (Ba1, positive outlook), Sainsbury's (Baa3),
or Morrison's (Baa2, negative outlook), and competitive
positioning and strategy to achieve leading positions in the key markets
it has selected, i.e. be number one, two or
a strong number three in each market where it operates. In the
competitive Belgium market, which account for 22% of group's
revenues, Delhaize ranks second behind Colruyt a price-oriented
supermarket chain with more than 25% market share, and in
the US (which represents 71% of group's revenues),
where in general the top 5 food retailers control half of the market (versus
approximately 90% in Europe), Delhaize formats are in general
well positioned in the very competitive supermarket environment.
Moody's moreover positively views the fact that the company made
selected divestitures over the recent past (e.g. Slovakia
and the Czech Republic, Food Lion Thailand in 2004, Shop N
Save in Singapore), and pursued bolt-on acquisitions to fill
in a geographical gap (Cash Fresh in 2005), to enter an adjacent
market (Victory in Massachussetts), or to gain new expertise (Harveys
in the US).
Delhaize Group's Baa3 rating takes account of the fact that since
the acquisition of Hannaford, the company has had one of the highest
margins in the supermarket industry (driven by the performance of Food
Lion and Hannaford), despite the recent burden of the Sweetbay conversion
programme. In Europe, the company's operating margin
(which has been under some pressure given the competitive environment
and the investment in price image the company has recently been undertaking),
is in line with Carrefour (A2) but lags behind best in class European
retailers such as Tesco (A1) whose operating margin consistently exceeds
Delhaize Group's Baa3 rating factors in a relatively conservative
financial policy, with some limited bolt-on acquisitions,
aimed at filling a geographical gap, which the company can integrate
within a 1 to 2 year period. Moody's also expects Delhaize
Group's liquidity to remain satisfactory. It is underpinned
by a USD500 million, five-year facility which contains two
covenants, for which there is sufficient leeway, and four
bilateral credit facilities totalling EUR275 million. The uncommitted
lines are not taken into account in our liquidity analysis.
Moody's expects that capital expenditures will remain at a healthy
percentage of depreciation in the intermediate term, given the above-mentioned
market renewal programs. The total amount of stores renewed by
the end of 2007 will amount to 500 or 40% of the total number of
stores currently operated. Moreover, we note that the company
has accelerated its store openings, with almost 100 new stores opened
in 2006, and more than 120 planned for 2007 across the countries
where the group operates.
The rating outlook is stable, reflecting Moody's anticipation
that (i) Delhaize Group will maintain its operating margin at least at
the current level in the US and in Europe, and that (ii) the group's
credit metrics will improve further from FYE2006 and will remain well
anchored in the Baa3 range, with retained cash flow to net debt
in the high teens and debt to Ebitda comfortably below 4, both ratios
being adjusted in accordance with Moody's adjustments.
Headquartered in Salisbury, North Carolina, Delhaize America
operates about 1544 supermarkets under the Banners Food Lion,Hannaford,
Kash n" Karry, Sweetbay, And Harveys along the Eastern
United States. Delhaize America is wholly owned by Belgium's
Delhaize Group, and accounts for the majority of group sales,
earnings, and debt.
Headquartered in Belgium, Delhaize Group is a food retailer which
operates 2,636 stores in eight countries and recorded sales revenues
of EUR18.6 billion and net income of EUR364.9 million in
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Corporate Finance Group
Moody's Investors Service
No Related Data.
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