Fitch Ratings has affirmed the US$1.4bn commercial paper programmes of Albertson’s, one of the largest supermarket and drug store operators in the US, at “F2”.
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In addition, Fitch assigns a ‘BBB+’ rating to Albertson’s US$4.8bn senior unsecured debt and US$1.4bn bank credit facilities. As of 2 May 2002 there was no commercial paper outstanding. The rating outlook is stable.
Fitch said that the ratings reflect Albertson’s solid market position in the US supermarket industry, its geographic diversity and early favourable results from its initiatives to turnaround its operating performance. The ratings also consider the company’s potential for acquisitions and the intensely competitive operating environment.
Over the last 11 months Albertson’s has made a series of announcements designed to restructure its business and improve its operating and financial performance. Changes have included the closure of 165 underperforming stores, the sale of 80 stand-alone drugstores in the Northeast, the exit of four markets and a plan to reduce operating expenses by US$500m by mid 2003. While store dispositions are not yet complete, asset sales to date are well ahead of expectations and cash flow from the two announced restructuring plans are expected to total US$555m versus an original estimate of US$450m. Although store closures have negatively affected top-line sales, operating profitability is improving. In the Q1 ended 2 May, EBITDA margin increased to 8.3% from 7.4% year on year.
Operating changes, coupled with greater financial discipline, have enabled the company to strengthen its financial profile. Over the last 18 months the company has not engaged in any share repurchase activity and capital expenditures have declined somewhat. As a result, cash flow has been directed toward debt reduction, with debt down more than US$600m since year-end 2000 on 1 February 2001. Leverage (total debt plus 8x rents to EBITDAR) has improved to 2.6x in the latest year ended 2 May 2002 from 2.9x at year-end 2000. While Albertson’s management has indicated a more bullish stance on acquisitions, Fitch does not expect the company to enter into a transaction that would compromise its credit quality and expects gradual improvement in the company’s credit profile as Albertson’s progresses with its restructuring.
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