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Moody's raises Dollar General outlook
Moody's Investors Service confirmed the ratings of Dollar General and changed the company's outlook to stable from negative, after issues causing uncertainly about the company's credit quality were resolved.
The company has $200 million of 8.625% senior unsecured guaranteed notes due 2010 outstanding, rated Ba2.
Moody's said Dollar General has settled class action and derivative lawsuits that were initiated following the announcement of accounting improprieties in 2001. Dollar General also has successfully refinanced its bank credit facilities and has retired its $383 million synthetic lease facility using internal cash sources.
The company has continued to grow its chain rapidly, but the number of new stores added each year has remained stable and represents a smaller percentage of the established store base.
Moody's said it believes this has had a stabilizing effect on the company's operating margins, but ratings continue to incorporate a cushion for a possible fall off in leverage and coverage measures resulting from the company's growth strategies.
While Moody's does not expect any rating change in the near term, ratings could rise over the intermediate term, if Dollar General is able to sustain improvements to leverage and coverage measures, and demonstrate that its operational infrastructure is able to keep up with its growth strategy. Conversely, the ratings agency said ratings could respond negatively to shifts in financial strategy, an inability to maintain ongoing systems improvements, and possible unexpected negative outcomes from the conclusion of a current SEC investigation.
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