Moody's ups Dollar General

Moody's Investors Service said it upgraded Dollar General Corp.'s corporate family and probability-of-default ratings to Ba2 from Ba3. The Speculative Grade Liquidity rating of SGL-1 was affirmed.

The agency also raised $1.451 billion senior secured term loan B1 to Ba1 (LGD3, 39%) from Ba2 (LGD 3, 31%) and its $451 million senior subordinated notes to B1 (LGD5, 86%) from B2 (LGD6, 93%).

Moody's said the upgrade follows Dollar General's redemption of its remaining $839 million senior notes.

The outlook is stable. This action concludes the review for upgrade begun on June 14.

"The stronger capital structure will lead to improved credit metrics more than offsetting recent margin pressure," Maggie Taylor, a senior credit officer with Moody's, said in a press release.

Pro forma for the debt reduction for the upcoming year ending Jan. 27, 2012, Dollar General's debt-to-EBITDA ratio is expected to be about 3.2 times, down from 3.5 times.

The Ba2 corporate family rating is supported by Dollar General's solid credit metrics, its dominant position in a segment of retail that is relatively resistant to economic cycles and its very good liquidity, the agency said.

The rating also reflects expectation that Dollar General is facing gross margin pressure given rising expenses, which cannot be fully passed on to its customers, the agency noted.

Dollar General's ratings are constrained by financial sponsor Kohlberg Kravis Robert's controlling interest in Dollar General, the agency said.

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