Moody's rates Dollar General loans B2, Caa1

Moody's Investors Service said it rated Dollar General Corp.'s $1.7 billion first-out tranche A term loan at B2 (LGD3, 37%) and its $600 million first-loss tranche B term loan at Caa1 (LGD4, 66%).

The agency changed the ratings on Dollar General's term loan B following the company's capital structure changes, which included the revision of the term loan B, previously rated B3 (LGD3, 44%), into two separate tranches with a significant structural difference - a $1.7 billion first-out tranche and a $600 million first-loss tranche.

The agency affirmed the issuer's B3 corporate family and probability-of-default ratings, Caa1 (LGD4, 66%) unsecured notes, Caa2 (LGD6, 93%) subordinated notes and speculative grade liquidity rating at SGL-3. The 8 5/8% unsecured notes rated Ba2 remains on review for downgrade.

The outlook remains stable.

The B3 corporate family rating and stable outlook reflect Dollar General's weak capital structure pro forma for the company's acquisition by Kohlberg Kravis Roberts & Co., the resulting weak credit metrics and the company's need to address its recent weak operating margins, Moody's said.

Moody's said it expects that it could take between 24 and 30 months before the company's debt-to-EBITDA ratio falls comfortably below 7 times.

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