Moody’s downgrades Tops

Moody's Investors Service said it downgraded the corporate family rating of Tops Holding II Corp. to Caa1 from B3, along with the company's probability of default rating to Caa1-PD from B3-PD.

The agency also said it downgraded the rating of Tops Holding LLC's senior secured notes due 2022 to Caa1 from B3 and Tops Holding II’s senior unsecured notes due 2018 to Caa3 from Caa2.

The outlook is stable.

The downgrades were due to the company's unsustainable capital structure, weak credit metrics and an expectation that its lease adjusted debt-to-EBITDA will remain at higher than 7x for the next 12- to 18-months given the challenging and competitive business environment, Moody’s said.

Unless the company’s operating performance and cash flow improves, it will not have enough liquidity to repay Tops Holding’s notes due in June 2018, the agency said.

The company’s credit metrics also have deteriorated with debt-to-EBITDA increasing to 7.2x at the end of the third quarter of fiscal 2016 from 6.6x at the end of fiscal 2014, Moody’s said.

The ratings also reflect the company's weak credit metrics, modest size relative to competitors and regional concentration, the agency said.

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