Fitch rates Kroger notes BBB

Fitch Ratings said it affirmed the Kroger Co.'s long-term issuer default rating at BBB and short-term issuer default rating and commercial-paper ratings at F2.

The outlook is stable.

Fitch also said it assigned a rating of BBB to Kroger's issuance of $1 billion of 30-year senior unsecured notes due 2047.

The new notes rank pari passu with existing debt and are being issued under Kroger's indenture dated June 25, 1999, the agency said.

The proceeds will be used to reduce outstanding commercial-paper balances and for general corporate purposes, Fitch said.

The ratings reflect Kroger's historically strong identical store sales, relatively stable EBIT margin, moderate financial leverage and significant scale, the agency said.

The company has demonstrated an ability to offset historical gross margin pressure from investments in price with cost-containment and the leveraging of fixed costs, resulting in EBIT margin gradually expanding to 3.4% in 2015, the agency said.

However, Fitch said it expects Kroger's EBIT margin to decline to 3.2% in 2016 from 3.4% in 2015 due to negative operating leverage, lower fuel margin per gallon and the integration of the lower margin Roundy's business, which was acquired in December 2015.

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