S&P: Sears, Kmart revolver, loan B, lowers notes

Standard & Poor's said today it assigned a B rating with a 1 recovery rating to Sears Roebuck Acceptance Corp. and Kmart Corp.'s $3.275 billion revolving credit facility due 2016 and $1 billion term loan due 2018.

The 1 recovery rating indicates 90% to 100% expected default recovery. The proceeds will be used to partly repay borrowings of about $1.5 billion currently outstanding under its revolving credit facility.

The agency also said it lowered the rating on the $1.25 billion second-lien notes due 2018 to B- from B and revised the recovery rating to 2 from 1. The 2 recovery rating indicates 70% to 90% expected default recovery.

The downgrade of the second-lien notes reflects the substantial increase of priority debt following the issuance of the term loan, S&P said.

The agency also affirmed the CCC+ corporate credit rating on Sears Holdings Corp.

The outlook is stable.

The ratings reflect the company's vulnerable business risk profile and highly leveraged financial risk profile, S&P said.

The ratings also consider the intense competition faced by the company from a broad range of competitors, the agency said, a view that the company has under-invested in its store base compared with its peers.

Its merchandising strategy also has not resonated with consumers, said Ana Lai, an S&P analyst.

"These factors have contributed to a steady decline in sales over a number of years and underperformance relative to almost all of its peers," Lai said in a press release.

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