S&P: Office Depot on watch

Standard & Poor's said it placed its BB+ corporate credit and other issue ratings on Office Depot Inc. on CreditWatch with negative implications.

The agency said that this action follows the announcement that the company projects a continued decline of sales and earnings in the second quarter of 2008, driven by weakness in the company's North American Retail segment.

Office Depot indicated that same-store sales during the quarter declined 10% from the prior year and that EBIT margins were 200 to 250 basis points weaker than anticipated, S&P noted, adding that it lowered its ratings on Office Depot back in April to BB+ from BBB- and assigned a negative outlook to the company, following the erosion in operating performance in both the North American Retail and Business Solutions segments and its expectation that challenging economic trends will continue to pressure performance in fiscal 2008.

The agency said that it also communicated that it could consider a lower rating if lease-adjusted debt to EBITDA increased to around 3.5x, which it now thinks is increasingly likely given our heightened concerns regarding the company's operating performance after the company's announcement.

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