S&P Raises A&P Credit Rating on Canada Sale

NEW YORK -- Standard & Poor's Ratings Services said yesterday that it raised its short-term rating on The Great Atlantic & Pacific Tea Co. Inc. to 'B-2' from 'B-3', based on the retailer's upcoming sale of its Canada division. Total debt was about $1 billion at June 18, 2005.

"The upgrade reflects enhanced liquidity generated from the sale of A&P Canada and the application of a significant portion of proceeds to debt reduction," said Standard & Poor's credit analyst Mary Lou Burde.

The ratings on A&P continue to be based on weak profitability, difficult industry conditions in its core U.S. markets, and high lease-adjusted debt leverage, the ratings service said. A&P's Aug. 15, 2005, sale of its Canadian operations for about $1.6 billion resulted in increased liquidity and significant funded debt reduction, although it eliminated an important source of cash flow. In 2004, EBITDA in Canada represented slightly over half of A&P's total EBITDA of $275 million.

For the 12 months ended June 18, 2005, EBITDA in Canada totaled $164 million of $281 million total company EBITDA.

Of the total sale proceeds, approximately $1 billion is in cash, $500 million is in stock, and $84 million is in debt to be assumed by the buyer, Metro Inc. A&P will have a 16 percent stake in Metro, and two representatives on Metro's board of directors.

Operational challenges for A&P following the sale of the solidly performing Canadian business remain substantial, S&P said. The challenges include soft consumer spending and intense competition from traditional and nontraditional food retailers.
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