S&P cuts some Sears ratings to junk

Standard & Poor's said it lowered its ratings on Sears, Roebuck and Co. and Sears Roebuck Acceptance Corp., including the long-term corporate credit rating to BB+ from BBB. The short-term rating on Sears Roebuck Acceptance Corp. was lowered to B from A-2.

All ratings were removed from CreditWatch, where they were listed with negative implications on Oct. 21, 2004. These actions follow the completion of Sears' merger with Kmart Holding Corp. in a $12 billion transaction, and the creation of a new parent company, Sears Holdings Corp.

At the same time, S&P said it assigned its BB+ corporate credit rating to Sears Holdings. The outlook is negative.

The BBB- bank loan rating and 1 recovery rating on the company's $4 billion senior secured revolving credit facility (co-borrowed by Sears Roebuck Acceptance Corp. and Kmart Corp.) were affirmed.

S&P said the downgrade reflects an increase in business risk for the combined company, as both Sears and Kmart will continue to be challenged to improve store productivity and profitability. Each business has struggled with intense competition over a number of years from companies like J.C. Penney Co. Inc., Kohl's Corp., Wal-Mart Stores Inc., and Target Corp. Moreover, S&P said it believes that the combined company will face difficulties in integrating different corporate cultures while trying to make Sears and Kmart stores more relevant to consumers in terms of convenience, merchandising, and value.

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