Moody's reviews Duane Reade

Moody's Investors Service said it placed the Caa1 corporate family and probability-of-default ratings of Duane Reade, Inc. on review for upgrade following the company's plans to be acquired by Walgreen Co. for $1.075 billion, which includes the assumption of $457 million of outstanding debt.

Also on review are $300 million 11¾% guaranteed senior secured notes due 2015 at Caa1 (LGD4, 57%) and $52 million 9¾% senior subordinated notes due 2011 at Caa3 (LGD5, 88%).

"Moody's review will focus on the companies' success in completing the transaction on the terms and conditions proposed, which include the assumption of Duane Reade's outstanding debt obligations," Bill Fahy, Moody's senior analyst, said in a statement.

The Caa1 corporate family rating reflects Duane Reade's high leverage and weak coverage along with its geographic concentration in and disproportionate exposure to economic conditions in the intensely competitive New York metro market, the agency said.

The rating also incorporates expectation that free cash flow will be weak over the next 12 months due to relatively modest cash flow that is largely consumed by capital expenditures, the agency noted.

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