Moody's Rates Stater Bros. Notes B2

NEW YORK — Moody's Investor Service here said Friday it has assigned a B2 rating to Stater Bros. Holdings' proposed $255 million senior notes, while affirming all other ratings.

NEW YORK — Moody's Investor Service here said Friday it has assigned a B2 rating to Stater Bros. Holdings [2]' proposed $255 million senior notes, while affirming all other ratings.

Proceeds from the new notes, along with cash on hand and borrowings under a new $145 million senior secured term loan due in 2014, will be used to repurchase Stater's existing $525 million 8.125% senior unsecured notes due in 2012.

Moody's said its affirmation of the company's B2 corporate family rating — a level described as “speculative” — reflects the company's weak pro forma credit metrics despite the debt reduction associated with the proposed refinancing, plus the company's modest operating margins, and competition from larger and financially stronger companies.

The ratings are supported by Stater's good market presence, positive free cash flow profile and good liquidity, Moody's added.

"The stable rating outlook anticipates the proposed debt reduction will provide the company with additional cushion to navigate the challenging economic and competitive environment in Southern California," Moody's said. "It [also] acknowledges that the challenging operating environment will likely limit the company's profit and cash flow improvement in the foreseeable future."