S&P rates Stater notes BB-

Standard & Poor's said it raised the corporate credit rating on Stater Bros. Holdings Inc. to BB- from B+ and raised the rating on the company's 10.75% senior unsecured notes due 2006 to B from B-.

In addition, a rating of BB- was assigned to the company's proposed offering of $160 million floating-rate senior notes due 2010 and to $525 million senior notes due 2012. Both new issues will be guaranteed by Stater's operating subsidiaries on a senior unsecured basis.

The outlook is stable.

Proceeds from the new debt issues will be used to retire the existing $438 million 10.75% senior unsecured debt, to prefund a new $200 million distribution facility in California, and to pay a $45 million dividend to La Cadena Investments, Stater's sole shareholder.

S&P said the ratings on Stater reflect its leveraged capital structure, relatively thin cash flow coverage of interest, and the impact that an aggressive "everyday low pricing" strategy has on operating margins. These risks are somewhat mitigated by the company's leading regional position in an industry with generally good business characteristics.

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