S&P cuts Albertsons' Safeway notes

S&P said it lowered its ratings on Albertsons Cos. Inc.'s Safeway and New Albertsons LP notes to B- with a 6 recovery rating, indicating the expectation for negligible recovery to lenders (0%-10%; rounded estimate: 0%).

The agency said Albertsons issuer credit rating and all other Albertsons issues-level ratings remain unchanged. The ratings on the Safeway notes had been BB- with a 2 recovery rating, indicating expectations of 70%-90% recovery; and the ratings on the NALP notes had been B+ with a 3 recovery rating, indicating expectations of 50%-70% recovery.

At close of the IPO, Albertsons will contribute a real estate portfolio appraised at $2.9 billion (out of $11.2 billion in total real estate) into newly formed special purposes entities under a Safeway Inc. unrestricted subsidiary that secures the preferred equity. “It is partly this transfer of real estate that leads to our downgrade of the Safeway and NALP notes,” S&P said.

The company will not use the IPO proceeds for debt reduction. “As a result, S&P Global Ratings' expects lease-adjusted leverage for fiscal 2020 to remain in the mid-5x area given solid operational execution and a moderate increase in debt following the preferred share transaction,” S&P said.

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