Moody's cuts Orchard

Moody's Investors Service said it lowered Orchard Supply Hardware Stores Corp.'s corporate family rating to B3 from B2 and $173.5 million senior secured term loan due December 2013 to B3 (LGD 4, 54%) from B2 (LGD 4, 57%).The ratings were placed on review for a further possible downgrade.

The downgrade reflects the company's continued weak operating results, evidenced in first quarter results which shown a decline in EBITDA in excess of 40%, the agency said.

The debt-to-EBITDA ratio for the period ending April 30 is around 6.3 times.

The review for further possible downgrade primarily reflects the likelihood of a further downgrade if the proposed spin-off of OSH by Sears Holdings (Ba2/review for possible downgrade) of its 80.1% shareholding in Orchard Supply is concluded, the agency added.

In the event the spin-off occurs, it is anticipated that Orchard Supply will incur higher costs, primarily related to expected stand-alone public company costs as well as the loss of purchasing leverage the company enjoys as part of Sears, the agency said.

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