Moody's may downgrade A&P

Moody's Investors Service said it placed The Great Atlantic & Pacific Tea Co.'s (A&P) B3 corporate family and probability-of-default ratings and Caa1 (LGD5, 73%) senior unsecured notes under review for possible downgrade and affirmed the speculative grade liquidity rating at SGL-3 following the company's announcement that it has reached a definitive merger agreement to acquire Pathmark Stores, Inc. for $1.3 billion in cash, stock and debt assumption and retirement.

The agency said the contemplated merger could result in a more highly leveraged entity with modest profitability that operates in highly competitive trade areas of the Northeast region of the country.

Moody's review will focus on the resulting capital structure of the combined company, the interim operating performance of A&P prior to the completion of the merger transaction, its financial policy and liquidity profile, an evaluation of potential synergies and the integration risk of merging the Pathmark operations into the A&P operations in a highly competitive and consolidating supermarket industry.

The affirmation of the speculative grade liquidity rating reflects the agency's expectation that the company will maintain adequate liquidity and that its internally generated cash flow, along with borrowings under its current committed revolving credit facility, should be sufficient to fund its capital expenditures, seasonal working capital needs and for the opening of any letters of credit.

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