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Moody's affirms Duane Reade
Moody's Investors Service said it affirmed Duane Reade, Inc.'s corporate family and probability-of-default ratings at Caa1, $210 million floating-rate secured senior notes due 2010 at B3 (LGD3, 37%) and $195 million 9¾% senior subordinated notes due 2011 at Caa3 (LGD6, 90%).
The outlook is stable.
The affirmation follows the announcement that Duane Reade will acquire eight stores in Manhattan from Gristede's and that Oak Hill and the other owners have agreed to fund the transaction plus other 2007 capital expenditures with a preferred stock investment of $39.4 million. So far, $13 million of the preferred stock has been placed.
The agency said the ratings are constrained by Duane Reade's record of flat revenue and operating losses when other rated drug stores have grown sales and profits, the company's weak credit metrics and Moody's expectation that free cash flow will remain modestly negative for at least the next four quarters.
However, Moody's said it believes that Duane Reade has adequate liquidity over the short term given that operating performance has started to modestly recover and free cash flow deficits have narrowed since the second quarter of 2006.
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