Moody's rates Stater notes

Moody's Investors Service said it assigned a rating of B1 to Stater Bros. Holdings Inc.'s proposed $685 million senior note issue, which is comprised of $525 million of fixed-rate notes due 2012 and $160 million of floating-rate notes due 2010. Moody's also affirmed all other ratings.

The outlook is stable.

Proceeds from the new senior notes will redeem the 2006 senior notes, pre-fund a new distribution center, and finance distributions to shareholders.

Moody's said the ratings reflect the company's highly leveraged financial condition, the direct competition with several larger and higher-rated grocery retailers, and Moody's expectation that cash flow margins will stabilize at materially lower levels than the extraordinary results from recent periods.

However, supporting the ratings are the company's leading position in its core markets, the long-term consistency of operating execution, and the operating company guarantees on the pending senior notes (relative to the non-guaranteed 2006 senior notes).

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