Moody's rates Petco notes Caa1

Moody's Investors Service said it assigned a Caa1 (LGD 5, 86%) rating to Petco Animal Supplies Stores, Inc.'s proposed $500 million of senior notes due 2018. Its B2 corporate family and probability of default ratings were affirmed, along with its $1.225 billion senior secured term loan due 2017 at B1 (to LGD 3, 38% from 35%) and $674 million senior secured term loan due 2013 at B1 (LGD 3, 33%), which will be withdrawn upon completion of the refinancing.

The outlook is negative.

Upon closing of the transaction the corporate family rating will be moved to the holding company, Petco Animal Supplies, Inc., the agency said.

The $500 million senior notes due 2018 are part of a $1.725 billion refinancing announced by Petco, Moody's said. The proceeds will be used to repay its $674 million term loan due 2013 and $450 million subordinated notes due 2014, and pay a dividend to Petco's equity owners, the agency said.

The ratings reflect an expectation that Petco's credit metrics will remain weak pro forma for the transaction, the agency said.

Moody's said it expects that debt-to-EBITDA will remain above 6.5x over the next 12 months.

The rating also reflects the continuing weak macroeconomic environment and the company's aggressive financial policy, the agency added.

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