S&P assigns Raley’s CCR, loan B+

Standard & Poor's said it assigned its B+ corporate credit rating to Raley's.

The outlook is stable.

Concurrently, the agency assigned a B+ issue-level rating to the company's new $200 million institutional term loan with a 3 recovery rating, indicating an expectation for meaningful recovery in the event of a payment default. Our recovery expectations are in the lower half of the 50% to 70% range.

In addition to the seven-year term loan, Raley's is entering a five-year $200 million asset-backed credit facility and $43 million 10-year subordinated seller notes (both not rated).

Proceeds from the term loan, subordinated seller notes and a drawdown on the revolver will fund the equity purchase and a small receivable. Pro forma for the transaction, CEO Michael Teel will have 92% ownership and sole voting control of Raley's Holdings Co.

"The rating on Raley's reflects its thinning free operating cash flow in recent years, niche West Coast geographic concentration, and participation in the increasingly competitive food retail industry, which is experiencing accelerating incursions and price competition from discounters, dollar stores, warehouse clubs, and drug stores. About two thirds of Raley's labor force is unionized and therefore, we also view labor negotiations as a key risk," S&P credit analyst Diya Iyer said in a news release.

"The company continues to stabilize relationships with local unions to avoid operating disruptions like the one that temporarily reduced EBITDA in fiscal 2013."

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