American Stores Co. and its subsidiary Jewel Companies Inc.'s senior debt ratings have been lowered to triple-'B'-minus from single-'A' by Standard & Poors, the New York based firm that rates the credit worthiness of corporations.
The Salt Lake City-based American's preferred stock has been lowered to double-'B'-plus from triple-'B' and commercial paper to 'A-3' from 'A-1'.S&P said all of American's issues were removed from CreditWatch, where they were placed March 28 after the company began its acquisition of California-based Lucky Stores Inc.
About $310 million of long-term securities is affected, said S&P.
"Financial risk will increase sharply due to American's $2.5 billion acquisition of Lucky Stores. Total debt, including capitalized rents, will rise to over 80 percent of capitalization from under 60 percent."
Partially offsetting the increase in financial risk, said S&P, will be the operating benefits to American from the purchase.
"The combination of Lucky and the existing Alpha Beta division will give American a powerful position in important West Coast markets. American's operating performance has deteriorated somewhat recently due in part to the competitive weakness of Alpha Beta. S&P anticipates that the merger with Lucky will bolster American's position in the West and enhance future operating profits."
The acquisition makes American Stores the largest supermarket retailer in the nation. S&P said its geographic diversity "provides long-range stability in spite of competitive market conditions that will continue to prevail in some regions. The rating anticipates that debt leverage will fall gradually in the next several years."