Food Retailer Delhaize Group S.A. Upgraded To 'BBB-' On Improved Metrics; Outlook Stable
PARIS (Standard & Poor's) March 11, 2008--Standard & Poor's Ratings Services
said today that it has raised its long-term corporate credit rating on Belgian
food retailer Delhaize Group S.A. to 'BBB-' from 'BB+'. At the same time, we
assigned an 'A-3' short-term corporate credit rating to Delhaize. The outlook
is stable.
"The upgrade reflects a steady improvement of the group's credit metrics,
which have now reached levels commensurate with an investment-grade rating,"
said Standard & Poor's credit analyst Nicolas Baudouin.
The ratings reflect Delhaize's solid regional positions, notably through
the U.S.-based Food Lion banner (51% of the store base), which enjoys leading
positions in southeastern and mid-Atlantic markets and has a good track record
of profitability. These factors are mitigated by activity in the highly
competitive U.S. supermarket industry (70% of sales), the diversified formats
it operates in Belgium (23% of sales), higher operating margins but smaller
scale relative to major operators, and adequate debt protection measures.
Delhaize reported total debt of €2.7 billion at year-end 2007.
"The stable outlook reflects Delhaize's good market position and
efficient operations, as well as the company's ability to maintain adequate
credit ratios despite the challenging climate for supermarkets in the U.S.,"
said Mr. Baudouin. We expect the company to use some of its internal cash flow
for growth--primarily through store development--but free cash flow is set to
remain positive after dividends, so debt is likely to continue decreasing
gradually.
There is little leeway for substantial debt-financed acquisitions and
share buy-backs at the current rating level. Furthermore, the outlook could be
revised to negative if market conditions deteriorate in the U.S., weakening
cash flow generation and financial measures. At current rating level, Delhaize
needs to maintain an adjusted FFO-to-debt ratio of more than 25%, debt to
EBITDA of less than 2.7x, and EBITDAR fixed charge coverage in excess of 2.5x.
An outlook change to positive is unlikely, based on the challenging U.S.
operating environment for the retail industry and assumptions that financial
measures will only modestly improve from the level achieved at year-end 2007.
Ratings information is available to subscribers of RatingsDirect, the
real-time Web-based source for Standard & Poor's credit ratings, research, and
risk analysis, at www.ratingsdirect.com. It can also be found on Standard &
Poor's public Web site at www.standardandpoors.com; select your preferred
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| Primary Credit Analyst: | Nicolas Baudouin, Paris (33) 1-4420-6672; nicolas_baudouin@standardandpoors.com |
| Secondary Credit Analyst: | Marketa Horkova, London (44) 20-7176-3743; marketa_horkova@standardandpoors.com |
| Additional Contact: | Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com |
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