Moody's rates Smart & Final loans Ba1, B1, B3

Moody's Investors Service said it assigned a Ba1 (LGD1, 9%) rating to Smart & Final Stores Corp.'s $150 million asset-based revolving credit facility, a B1 (LGD4, 55%) rating to its $360 million first-lien term loan and a B3 (LGD5, 83%) rating to its $175 million second-lien term loan.

The agency also assigned B1 corporate family and probability-of-default ratings to Sharp Holdings Corp., the proposed ultimate parent of Smart & Final Stores.

The ratings outlook is stable.

The ratings were assigned in connection with the planned acquisition of the company by Apollo Management, LP in a transaction that is expected to close in late May and is valued at about $890 million. The acquisition will be funded by $200 million from the first-lien term loan, $175 million from the second-lien term Loan, $240 million in proceeds from the issuance of commercial mortgage-backed securities and a $272 million equity contribution by Apollo.

The agency said the ratings reflect the company's weak debt protection measures, especially high projected debt-to-EBITDA ratio of about 5.9x for 2007, limited geographic diversity, modest scale and low relative product margins.

The ratings are supported by the company's niche position in the wholesale grocery and food service supply industries, comparable-store sales growth, low seasonality of cash flow generation on a quarterly basis and a well-maintained store base due to continued capital expenditures on maintenance and renovation, Moody's said.

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