Moody's downgrades A&P

Moody's Investors Service said it downgraded Great Atlantic and Pacific Tea Co.'s corporate family rating to Caa2 from Caa1, probability-of-default rating to Caa3 from Caa1, senior convertible notes and senior unsecured notes to Caa3 (LGD4, 53%) from Caa2 (LGD5, 79%) and speculative-grade liquidity rating to SGL-3 from SGL-2 and confirmed its senior secured notes at Caa1 (LGD2, 21%).

This completes the review for possible downgrade started on Jan. 12, and the outlook is negative.

The agency said the downgrade reflects its expectation that A&P's sales performance and profit margins are unlikely to recover quickly from their recent weak levels and that cash flow and credit metrics are therefore likely to remain extremely weak. Despite steps taken to maintain satisfactory liquidity, Moody's believes that A&P's capital structure is ultimately unsustainable at current performance levels.

The negative outlook reflects the possibility that ratings could fall further unless the company is able to improve its cash from operations, and the ratings reflect a strong likelihood that debtholders are likely to have a significant loss on their holdings, Moody's said.

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