American Stores Co.'s single-'A' rated senior debt, triple-'B' preferred stock and 'A-1' commercial paper have been placed on S&P CreditWatch with negative implications following the company's $1.8 billion tender offer Tuesday to acquire Lucky Stores Inc.
About $260 million of long-term debt and preferred stock is affected.Financing for the acquisition would increase total debt, including capitalized operating leases to about 75 percent of capitalization from under 60 percent currently, said Standard & Poors.
S&P said the senior debt rating would be lowered, although not below the triple-'B' category, reflecting the increased financial risk. The commercial paper rating would probably be lowered to 'A-2'.
The combination of the Salt Lake City-based American Stores and the California-based Lucky Stores would result in one of the two largest supermarket chains in the country, with strong market positions in many regions around the country.
If the tender offer succeeds, S&P said it will evaluate American's business and financial plans. The extent of the downgrade will be determined, in part, by the speed with which the acquisition debt can be repaid, S&P said.