Moody's changes Office Depot outlook to stable

Moody's Investors Service said it changed Office Depot, Inc.'s outlook to stable from developing and affirmed its corporate family rating at B2, probability of default rating at B2-PD, speculative grade liquidity rating at SGL-1 and $250 million notes due 2019 at B2 (50%, LGD4).

The agency also downgraded American Foreign Power, Inc.'s $13 million debentures due 2030 and OfficeMax, Inc.'s $18 million 7.35% debentures due 2016 and $186 million revenue bonds to B3 (77%, LGD5) from B2 (72%, LGD5).

"Office Depot has formally guaranteed the rated legacy Office Max debt, which is a significant rating factor as it crystallizes the capital structure," Moody's vice president Charlie O'Shea said in an agency news release. "On a proforma basis, Office Depot remains highly leveraged, with our estimated debt/EBITDA of around 6 times, with interest coverage as measured by EBITA/interest weak at around 1.25 times.

"The company's very good liquidity provides critical support for the rating and provides the company with some cushion as it goes through the integration process. In the event the company is able to execute its plan, upward rating momentum would emanate."

The agency said the B2 rating primarily considers Office Depot's credit metrics, which Moody's believes will remain weak until the integration is completed, extraneous stores are closed and duplicative expenses eradicated.

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