S&P rates Petco Health, loans B

S&P said it gave B ratings to Petco Health and Wellness Co. Inc. and its planned $1.2 billion term loan due in 2028. The recovery rating is 3, indicating an expectation for meaningful (50%-70%; rounded estimate: 50%) recovery in default.

The loan will be used in a refinancing transaction, which will address the near-term maturities on the company's term loan and asset-based lending facility. The current issuer is Petco Holdings Inc., and the agency will discontinue rating Petco Holdings when the transaction is completed.

“The rating reflects our expectation that Petco will complete the refinancing, extending debt maturities with no material impact to leverage, which is currently in the mid-4x area. The new capital structure will consist of a $500 million ABL due 2026 (not rated), a $1.2 billion term loan B due 2028 and $500 million of other senior secured debt,” S&P said in a press release.

The outlook is stable, reflecting expectations Petco's performance will continue to benefit beyond the pandemic as increased pet adoption and fostering provide some tailwinds, leading to sustained positive same-store sales, stable margins, and leverage in the mid-4x range over the next 12 months, S&P said.

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