Fitch applies BBB to Kroger notes

Fitch Ratings said it assigned a rating of BBB to Kroger Co.'s multi-tranche five-year, 10-year and 30-year aggregate issuance of $1.5 billion senior unsecured notes.

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

Proceeds will be used to refinance $600 million of 6.4% bonds due August 2017, to fund a contribution of up to $1 billion to Kroger's company-sponsored defined benefit plan and for general corporate purposes, including the repayment of commercial paper.

As of May 20, Kroger had $13.4 billion of debt inclusive of $880 million of commercial paper. Kroger's qualified company-sponsored pension plan was underfunded by about $1 billion on a projected benefit obligation basis. This unfunded liability is reflected on the company's balance sheet but is not included in Fitch's leverage calculation, the agency noted.

The outlook is stable.

Fitch said the ratings reflect Kroger’s historical ability to generate above average identical store (ID) sales, drive customer visits, and offset gross margin pressure with productivity savings along with its moderate financial leverage, good cash flow generation and significant scale.

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