Owner of Giant, U.S. Foodservice has its credit rating cut by Moody's

Ahold's debt is lowered to a notch above junk

January 18, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Royal Ahold NV's credit rating was downgraded to one notch above junk yesterday by Moody's Investor's Services based on increasing concerns that the Dutch food provider, which owns Giant Food Inc. and U.S. Foodservice Inc. in Maryland, will not be able to reduce debt.

Ratings on Ahold's senior unsecured debt and guaranteed obligations were cut to Baa3 from Baa1, and its group rated subordinated debt issues to Ba1, according to a statement from Moody's.

In November, when Ahold cut its annual earnings forecast for the second time in 2002, the company announced a three-year plan to sell noncore businesses and use the proceeds to reduce its $12.8 billion of debt.

"Although the rating agency recognizes the strengths of Ahold's operating businesses and the relative predictability of the cash flows associated with them, Moody's believes that generating free cash flow to reduce debt will prove challenging," the statement said.

In the same breath, Moody's also stated that, "The outlook on all ratings is stable."

A company spokeswoman in the Netherlands declined to comment on the credit downgrade.

Although Ahold's U.S. food retail operation is "solidly positioned within the competitive U.S. food retail sector and benefits from an experienced local management team," weak demand and moderate margin pressure may restrict growth in operating cash flows, Moody's stated.

Ahold, the world's largest food distributor, said this month that global sales grew 0.3 percent, to about $17.61 billion, during the three months that ended Dec. 29. Overall sales last year grew 9.2 percent from 2001.

Ahold's liquidity appears to be satisfactory, Moody's stated yesterday, but, "in the absence of access to the capital markets, it would be heavily reliant upon its banking facility for refinancing."

Company officials and analysts have said that Giant and Columbia-based U.S. Foodservice, the nation's No. 2 food distributor which saw sales drop in the last half of 2002, are core companies that won't be sold. Sixty percent to 70 percent of Ahold's overall profit comes from its U.S. supermarket business.

Shares of Royal Ahold fell 34 cents to $13.46 on the New York Stock Exchange yesterday. The shares are down by half from their 52-week high in April.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.