S&P lowers Stater Bros. outlook to negative, rates notes B+

Standard & Poor's said it revised the outlook on Stater Bros. Holdings Inc. to negative from stable.

At the same time, S&P said it assigned its B+ rating to the company's proposed $275 million senior notes due 2015.

Proceeds from this issuance will be used to repay the $175 million of floating rate notes due 2010, redeem $15 million in class A common stock, pay $5 million in dividends and cover about $77 million in additional working capital and construction expenses for its new distribution center, as well as fees and expenses, the agency said.

All other ratings, including the B+ corporate credit rating on Stater Bros., were affirmed, the agency noted, adding that the negative outlook reflects pro forma credit metrics that will be weak for the current ratings and the higher than anticipated construction costs of the company's new distribution center.

The ratings on Stater Bros. reflect the risks inherent in the competitive supermarket industry, the small size of the company compared with its direct competitors, the impact of an aggressive "everyday low pricing" strategy on operating margins and the company's historically leveraged capital structure, S&P said.

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