2012年2月29日 / 晚上8点54分 / 5 年前

TEXT-S&P rates Geat Atlantic & Pacifc Tea

Overview	
	
     -- The Great Atlantic & Pacific Tea Co. Inc. (A&P)'s plan to emerge from 	
bankruptcy was confirmed by a federal bankruptcy judge on Feb. 27, 2012, and 	
we now expect the company to consummate that plan in the very near future. 	
     -- U.S.-based grocery chain A&P is obtaining a $270 million senior 	
secured term loan in addition to $490 million of debt and equity financing 	
from an investor group to facilitate emergence. 	
     -- We are assigning a preliminary 'B-' corporate credit rating to the 	
company and a preliminary 'B+' issue-level rating with a preliminary '1' 	
recovery rating to the senior secured term loan.	
     -- The negative outlook incorporates our belief that A&P may not improve 	
operating profits such that it will be able to fund cash interest costs and 	
needed capital spending on a sustained basis in the future. 	
 	
Rating Action	
On Feb. 29, 2012, Standard & Poor's Ratings Services assigned a preliminary 	
'B-' corporate credit rating to the Montvale, N.J.-based The Great Atlantic & 	
Pacific Tea Co. Inc. At the same time, we assigned a preliminary 'B+' issue 	
level rating, two notches above the preliminary corporate credit rating, and a 	
preliminary '1' recovery rating to the company's proposed $270 million senior 	
secured term loan. The preliminary '1' recovery rating incorporates our 	
expectation of very high (90% to 100%) recovery of principal in the event of a 	
postemergence default by the company. The outlook is negative. 	
 	
Rationale	
The preliminary ratings are subject to A&P's timely emergence from bankruptcy 	
and the consummation of its plan of reorganization remaining in line with our 	
expectations. Moreover, these ratings are also subject to review of the final 	
loan documentation.	
	
The preliminary 'B-' corporate credit rating reflects our view that the 	
company will maintain "adequate" liquidity (based on our criteria) in the near 	
term and our belief that A&P has the potential to improve operating 	
performance such that it will be able to sustain its postemergence capital 	
structure. The view also incorporates our expectation that A&P can grow 	
profits to fund cash interest and capital spending with operating cash flows. 	
We believe that A&P lowered certain costs during its reorganization, and these 	
efforts will improve the company's profitability in the near term. 	
	
Nevertheless, despite these actions, we anticipate that A&P will still have 	
weaker operating metrics than many industry peers. Moreover, we believe that 	
A&P may also be susceptible to weak economic conditions and industry 	
competition, and sales declines could offset the operational improvements. As 	
a result of these factors, we assess the company's business risk profile as 	
"vulnerable." We also view the company's financial risk as "highly leveraged," 	
as a result of our forecasted credit ratios. Nonetheless, we realize that the 	
company's relatively low cash interest burden provides the company some 	
financial flexibility.  	
	
We believe actions A&P has taken during its reorganization will benefit the 	
company's operating performance during 2012. During its reorganization, A&P 	
took actions to improve its cost structure considerably, including 	
renegotiating its supply contract and reducing labor costs as a result of 	
agreements with its various labor unions. We also expect A&P to receive more 	
favorable terms with vendors upon emergence, which should lead to some gross 	
margin enhancement. 	
	
We believe the company's various initiatives to improve in-store execution, 	
pricing, and merchandising should enhance sales and customer experience over 	
time. Although these actions may lead to success in the future, we do not 	
assume an immediate sales gain in 2012, and forecast relatively flat sales 	
over the next year; however, we expect improvement thereafter. Below are our 	
more detailed assumptions of the company's operating performance over the next 	
two years, which is the base case for our ratings decision:	
     -- Relatively flat sales in 2012 and a 2% to 3% increase in 2013, from 	
comparable-store sales.	
     -- Overall EBITDA margin to be moderately under 2% in 2012 and near 2.5% 	
in 2013.	
     -- This would lead to EBITDA of approximately $120 million in 2012 and 	
about $180 million in 2013.	
 	
This performance scenario would lead to the following credit ratios at the end 	
of 2013 and cash flow dynamics over the next two years:	
     -- We expect that the company will fund some of its capital spending with 	
excess liquidity in 2012, and will be cash flow-neutral in 2013.	
     -- At the end of 2013, adjusted debt to EBITDA will be in the mid-7x 	
range. Our debt and adjusted debt include the company's first-lien term loan, 	
second- and third-lien notes (we assumed that the second-lien notes will 	
accumulate pay-in-kind interest over the next two years), the present value of 	
operating lease commitments, a tax-adjusted self insurance liability, and an 	
estimate of the company's multiemployer plan liability. 	
     -- Funds from operations (FFO) to adjusted debt of approximately 12%.	
 	
These resulting ratios are in line with highly leveraged financial risk 	
profiles. 	
	
We believe that the total effect and timing of the company's various 	
initiatives will likely be uneven and somewhat difficult to predict. As such, 	
we believe that there is a wide range of possible performance scenarios and 	
credit ratios over the next two years. Nonetheless, even in our most 	
optimistic expected performance scenarios, we would expect the company's 	
credit ratios to remain in line with indicative ratios of highly leveraged 	
financial risk profiles. Conversely, in our anticipated downside scenarios, we 	
still expect the company to have the liquidity resources to fund 	
administrative costs and the capital spending associated with its operational 	
initiatives over the next two years.	
 	
Liquidity	
We expect to view A&P's liquidity as adequate upon its emergence from 	
bankruptcy, and we forecast sources of liquidity to be greater than its uses 	
over the next two years by a ratio of 1.2x. We expect sources to include $60 	
million to $70 million of excess cash, available borrowings on the company's 	
$375 million revolving credit facility, and FFO in 2012 to be between $70 	
million and $80 million. We primarily expect cash uses to include working 	
capital needs and capital spending in the range of $100 million to $135 	
million. 	
	
Relevant aspects of A&P's liquidity, in our view, are as follows:	
     -- We expect coverage of uses by sources to exceed 1.2x for the next two 	
years.	
     -- We expect that sources would exceed uses, even with a 15% drop in 	
forecasted EBITDA.	
     -- We anticipate that the company will have adequate headroom over 	
maintenance financial covenants and the company will not have to comply with 	
maintenance financial covenants over the next year.	
     -- No near-term maturities or amortizations.	
 	
Over the next year, we expect the company to use available liquidity sources 	
to fund capital spending in 2012, but also believe that it could manage 	
capital spending so that it is cash flow-neutral. In 2013 and beyond, we 	
expect that the company will fund capital spending with cash flow from 	
operations. The company may elect to pay cash interest on its second-lien 	
notes if operating performance improves more than we anticipate. Thus, we do 	
not expect the company do generate meaningful excess cash flow in the near or 	
intermediate term.	
 	
Recovery analysis	
For the complete recovery analysis, please see our recovery report on Great 	
Atlantic & Pacific Tea Co. Inc., to be published as soon as possible after 	
this release, on RatingsDirect.	
 	
Outlook	
The outlook is negative, which incorporates the chance that A&P is unable to 	
increase profitability as we anticipate. We may lower the company's rating if 	
it cannot generate sufficient cash to fund cash interest costs (of both its 	
first-lien term loan and second-lien notes) and the necessary capital spending 	
with operating cash flows in the near term. We believe that EBITDA needs to be 	
in the range of $160 million to $190 million to successfully do so. Although 	
there are several factors that could inhibit the company from reaching this 	
level of profitability, we believe that if the company's sales trends are 	
considerably negative in 2012 or flat or slightly negative throughout 2012 and 	
into 2013, A&P will not likely reach that level of EBITDA. In either of those 	
cases, we would likely lower our ratings. On the other hand, we would consider 	
a stable outlook if EBITDA improved to the aforementioned range, and we were 	
comfortable that the sales and operating trends would lead to consistent 	
performance.	
	
[Standard & Poor's has provided the foregoing independent credit opinions 	
based on the information that has been provided. In offering such opinions, 	
Standard & Poor's is independent from the engaging company and any parties to 	
the bankruptcy proceeding. We do not advise, advocate, or support any 	
particular plan of reorganization and a rating opinion does not indicate 	
whether the plan is fair, reasonable, or appropriate or likely to be confirmed 	
as the basis for the company's emergence from bankruptcy. The issue ratings 	
provided by Standard & Poor's to companies prior to exiting bankruptcy are 	
preliminary, and subsequent developments or changes to the plan or information 	
considered by us in our analysis could result in final conclusions that differ 	
from the preliminary ratings. Issuer ratings provided by Standard & Poor's to 	
companies prior to exiting bankruptcy are our current opinion of the ratings 	
that we expect to assign at a future date and subsequent developments or 	
changes to the plan or information considered by us in our analysis could 	
result in rating conclusions that differ from the expected ratings. Rating 	
opinions provided by Standard & Poor's to a company in bankruptcy are assumed 	
to be used in accordance with all applicable laws.]	
 Ratings List	
	
New Rating; Outlook Action	
	
Great Atlantic & Pacific Tea Co. Inc. (The)	
 Corporate Credit Rating                B-(prelim)/Negative/--  	
	
New Rating	
	
Great Atlantic & Pacific Tea Co. Inc. (The)	
Senior Secured 	
  $270 mil term loan due 2017          B+(prelim)   	
   Recovery Rating                     1(prelim)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below