Moody's downgrades BI-LO

Moody's Investors Service said it downgraded BI-LO, LLC's corporate family and probability-of-default ratings to B2 from B1 and assigned a B2 rating (LGD4, 57%) to the company's proposed $285 million senior secured notes due 2019.

The outlook is stable.

The proposed notes are being issued to refinance BI-LO's $195 million senior secured term loan due 2015 and fund a $74 million cash distribution to the company's equity sponsor. The $74 million dividend represents about half of the cash equity investment made by the sponsor in conjunction with BI-LO's emergence from bankruptcy in April 2010.

"The downgrade to B2 considers that BI-LO is pursuing a financial policy that is more aggressive than what was originally expected when we assigned a rating to the company in April 2010 following its emergence from bankruptcy," Mickey Chadha, a senior analyst at Moody's, said in a statement.

"The large debt-financed dividend along with the elimination of the cash flow sweep mechanism suggests there will not be any meaningful reduction in funded debt through operating cash flow. As a result, we expect debt/EBITDA will likely remain over 5 times, a level more consistent with a B2 corporate family rating."

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