S&P rates GRD Holding loans B+

Standard & Poor's said it assigned a preliminary B corporate credit rating to GRD Holding III Corp., the indirect parent of Garden Ridge Corp.

The agency assigned a preliminary B+ rating to GRD Holding III's senior secured first-lien credit facility, which consists of a $250 million six-year term loan B. The preliminary recovery rating is 2, indicating expectation of 70% to 90% recovery.

The outlook is stable.

Proceeds from the term loan, along with proceeds from an $85 million subordinated mezzanine note (unrated) and a $394 million equity contribution, will be used to fund the purchase of 60% ownership interest in Garden Ridge currently held by an affiliate of private-equity sponsor Three Cities Research and management.

"The ratings on GRD Holding III and operating subsidiary and guarantor, Garden Ridge, reflect our expectation of stable performance trends and credit measures over the medium term," S&P analyst Jayne Ross said in a statement.

The company's financial risk profile is highly leveraged, with thin cash flow protection measures, adequate liquidity and a very aggressive financial policy as a result of a leveraged buyout, according to the agency.

"The company's weak business profile incorporates our assessment of its narrow position and small scale in the highly competitive and mature home goods industry, along with CEO key man risk," Ross added.

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