S&P keeps SuperValu on negative watch

Standard & Poor's said SuperValu Inc.'s BBB corporate credit, A-3 commercial paper and BBB senior unsecured debt ratings remain on CreditWatch with negative implications, where they were placed on Dec. 23. SuperValu has reached an agreement to acquire Albertson's Inc. (BBB-/negative watch /A-3). A consortium led by Cerberus Capital Management LP will acquire the noncore food assets and chain drug retailer CVS Corp. (A-/negative watch/A-2) will acquire the stand-alone drugstore business.

SuperValu's acquisition of the core food assets for $12.4 billion (including about $6 billion in existing Albertson's debt) would be funded by cash, stock and debt assumption.

S&P said the CreditWatch placement reflects the potential and substantial execution challenges of SuperValu acquiring a company larger than itself, managing a much larger and more complex group of retail operations, maintaining corporate overhead functions for the other two buyers for a period of time and operating with greatly increased financial leverage.

The acquisition will double SuperValu's revenue and triple its EBITDA, adding more than 1,100 stores to SuperValu's network of 721 owned and 879 licensed stores. Although SuperValu would acquire Albertson's most successful divisions and would choose to minimize execution risk by leaving existing operating management in place, S&P said its "portfolio" management approach could be problematic in a larger organization. Moreover, the integration would take place during a time of intensifying competition in the supermarket industry.

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