S&P cuts Tops Holding, notes

S&P said it lowered its corporate credit ratings on Tops Holding LLC and parent Tops Holding II Corp. to B- from B.

The outlook is stable.

At the same time, the agency lowered the issue-level rating on Tops Holding LLC's $560 million senior secured notes to B- from B. The recovery rating is 4, which indicates an expectation of average recovery in the event of default at the lower end of the 30% to 50% range. This rating was previously at the higher end of the '4' recovery range.

S&P also lowered the issue-level rating on Tops Holding II Corp.'s unsecured notes to CCC from CCC+. The 6 recovery rating is unchanged, which indicates an expectation of negligible (0% to 10%) recovery.

"The downgrade reflects Tops' persistent underperformance against its regional grocer peers and our expectation for soft operating trends to continue amid challenging conditions, particularly in the company's core upstate New York market. We believe Tops' credit metrics will erode further in the coming year, reaching the low-8.0x range from the high-7.0x range through the latest year ending Jan. 2, 2016, as we expect EBITDA margins to remain pressured from higher labor costs, normalization of fuel margins, and ongoing deflationary headwinds," S&P credit analyst Declan Gargan said in a news release.

"As a result, we are revising our comparable rating analysis modifier to negative from neutral based on our view that operating performance, relative market position, and credit protection metrics are weaker than its regional grocer peers."

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