Moody's affirms Kroger

Moody's Investors Service said it affirmed all of Kroger Co.'s ratings, including its Baa2 senior debt rating, following the company's announcement that it agreed to purchase all outstanding shares of Harris Teeter Supermarkets Inc. The outlook is stable.

The transaction is valued at about $2.5 billion including assumption of about $100 million of Harris Teeter debt and will be financed through the issuance of new senior notes.

"Although the transaction will result in weakening of Kroger's credit metrics, we expect this weakening to be temporary as it continues to grow identical-store sales and increase EBITDA, and we believe that if required, the company will curtail future share purchases to reduce debt and improve credit metrics as it has sufficient leeway to do so," Mickey Chadha, senior analyst at Moody's, said in an agency news release.

"The acquisition will enhance Kroger's competitive position and geographic diversity, giving it a presence in the southeast and Mid-Atlantic States with minimal store overlap requiring only modest incremental capital investment, and will be accretive to Kroger's earnings."

The agency estimates that pro forma for the transaction, Kroger's debt-to-EBITDA ratio will be about 3.8 times, compared with 3.0 times for the last 12 months ended May 25.

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