S&P lowers Sobeys to junk

Standard & Poor's said it lowered its long-term corporate credit and senior unsecured debt ratings on Sobeys Inc. by one notch, to BB+ from BBB-.

At the same time, S&P said it removed the ratings from CreditWatch with negative implications, where they were placed April 27, following Empire Co. Ltd.'s (unrated) proposed offer to privatize Sobeys.

The outlook is negative.

The downgrade reflects Sobeys' weaker credit protection measures, expected aggressive capital structure and restricted liquidity resulting from the completion of the privatization, a heavy capital expenditures program and the proposed acquisition of Thrifty Foods Inc. (unrated), the agency added.

S&P said that the ratings reflect Sobeys' aggressive financial risk profile and the increasingly competitive operating environment while these factors are partially offset by Sobeys' No. 2 national market share position, good geographic and format diversity and resilient same-store sales performance.

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