Moody's Downgrades Supervalu and Albertson's to Junk Status.

NEW YORK -- Moody's Investors Service here yesterday cut its ratings on Albertson's Inc. and Supervalu Inc. to junk status, and it might cut them again, due to the impacts from the Albertson's breakup and acquisition by the investors led by Supervalu.

Moody's said the Albertson's downgrade is based on the agreement to sell itself to the group, the pending division of Albertson's assets and operations, post-transaction and expectations that Supervalu will be highly leveraged and will face integration challenges.

Moody's added that full achievement of the promised post-merger operating efficiencies will prove challenging.

The ratings service also said it expects that the legacy debt of both Albertson's and American Stores will likely be held post-merger by subsidiaries of Supervalu, and that it will therefore be effectively and structurally subordinated to other obligations.

Supervalu was cut due to its increase in leverage, as it assumes about $6 billion in debt from Albertson's, as well as the expectation that Supervalu's senior debt will become subordinated to other obligations, Moody's said.

Reuters reported yesterday that the other ratings services Standard & Poor's and Fitch Ratings have said they may cut their ratings on Albertson's and Supervalu, but currently rank both companies investment grade.
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