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Rating Action:

Moody's upgrades Dollar Tree to Baa3

02 Mar 2018

New York, March 02, 2018 -- Moody's Investors Service, ("Moody's") today upgraded Dollar Tree Inc.'s senior unsecured rating to Baa3 from Ba2. Moody's also upgraded the rating of the company's senior secured bank credit facilities and Family Dollar Store, Inc. legacy notes to Baa2 from Baa3. Additionally, Moody's withdrew the company's Ba1 Corporate Family Rating, Ba1-PD probability of default rating and it's SGL-1 speculative grade liquidity rating. The ratings outlook is stable.

"Dollar Tree's strong operating performance and cash flow generation coupled with debt prepayments demonstrates that the integration of Family Dollar stores is continuing as planned and we expect the company's positive operating trends to continue", Moody's Vice President Mickey Chadha stated. "We also anticipate that the company will refinance its secured bank credit facilities in the near term with the refinancing being consistent with an investment grade unsecured capital structure", Chadha further stated.

The upgrade also reflects the consistent and sustained improvement in credit metrics through increased EBITDA generation and debt prepayments. The company has prepaid about $2.4 billion of debt since the closing of the Family Dollar acquisition. Moody's anticipates that after the company moves to an unsecured capital structure and/or the collateral for the Family Dollar legacy notes and bank facilities falls away, the ratings of these facilities will no longer be notched up and will be lowered to Baa3.

Dollar Tree Inc:

The following ratings are upgraded:

Senior unsecured notes to Baa3 from Ba2 (LGD 5)

Senior secured bank credit facilities to Baa2 from Baa3 (LGD2)

Family Dollar Store, Inc:

Senior secured notes at Baa2 from Baa3 (LGD2)

Dollar Tree Inc:

The following ratings are withdrawn:

Corporate Family Rating at Ba1

Probability of Default Rating at Ba1-PD

Speculative Grade Liquidity rating at SGL-1

RATINGS RATIONALE

Dollar Tree's Baa3 senior unsecured rating reflects the company's sizable scale and its fixed and multi-price point product offerings. Moody's views the dollar store sector favorably and expects that it will continue to grow given its low price points and convenient locations especially for cash constrained consumers. Moody's expects Dollar Tree's credit metrics to improve in the next 12 months with lease adjusted debt/EBITDA getting to about 3.0 times as the company fully integrates its acquisition of Family Dollar, maintains same store sales growth and increases profitability. The ratings also reflect Moody's expectation that the company's financial policies will be balanced and will support its investment grade profile while maintaining lease adjusted debt/EBITDA at or below 3.0 times. Moody's believes that operating performance of the Family Dollar store base will continue to improve as management implements strategies to streamline sourcing and procurement, optimize product offerings, improve traffic and increase sales of higher margin variety and seasonal products in Family Dollar stores while also increasing the higher margin private label penetration in the Family Dollar stores. Operating efficiencies and strategic initiatives to minimize costs are also expected to reduce expenses and improve cash flow generation of the combined company. Ratings are also supported by the company's very good liquidity.

The stable outlook reflects that while earnings will continue to grow, credit metrics will remain in line with the Baa3 rating level over the next 12-18 months. The stable outlook also reflects our expectation that financial policies will be balanced. Additionally, it reflects that the company will maintain very good liquidity and will manage its debt maturities as typical of an investment grade profile.

An upgrade would require continued strong operating performance for both Dollar Tree and Family Dollar banners including positive same store sales. An upgrade will also require a balanced financial policy. Quantitatively, an upgrade would require lease adjusted debt/EBITDA sustained below 3.0x and EBIT to interest expense sustained above 5.0 times.

Downward rating pressure would result should Dollar Tree's financial policies become aggressive. Ratings could also be downgraded should Dollar Tree's operating performance or liquidity deteriorates or debt levels increase such that lease adjusted debt to EBITDA is sustained above 3.5 times or EBIT to interest expense falls below 4.0 times.

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.

Dollar Tree, operated 14,744 stores across 48 US states and five Canadian provinces as of October 28, 2017. Stores operate under the brands of Dollar Tree, Family Dollar, and Dollar Tree Canada. Revenue is about $21.5 billion for the LTM period ended October 28, 2017.

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.

Manoj Chadha
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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