Moody's affirms Roundy's

Moody's Investors Service said it affirmed the corporate family rating of Roundy's Supermarkets Inc. at B2 and its proposed $875 million bank loan at B2.

Relative to the prior capital structures that were rated on Oct. 13 and Oct. 21, the bank loan was upsized to $875 million from $825 million, the originally contemplated senior notes and senior subordinated notes will not be sold and the dividend payment will be smaller.

The outlook is stable.

Proceeds will be used to pay a $280 million dividend distribution to shareholders and to refinance the company's existing $118 million term loan and $300 million senior subordinated notes.

While recognizing the lower dividend (and associated debt) compared to earlier versions of the contemplated transaction, the rating affirmation considers Moody's belief that free cash flow to debt is not expected to significantly improve from current levels over the next 18 months and the potential for higher leverage given the basket in the new bank agreement to issue up to $200 million of public notes.

The ratings recognize the company's position as the leading supermarket operator in Wisconsin but are constrained by the substantial burden of debt service, capital expenditures, pension contributions, cash taxes and Moody's view that competitive pressures will intensify as well-regarded competitors like Wal-Mart continue to develop supercenters in Roundy's trade area, the agency said.

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