Moody's Downgrades BJ's Ratings

NEW YORK — Moody's Investors Service here said Monday it has downgraded the corporate family rating of BJ's Wholesale Club [3] to B2 from B1.

Moody's also said it downgraded BJ's probability of default rating to B2 from B1; downgraded the ratings on two existing secured term loans; and also assigned provisional ratings to two proposed secured term loans.

BJ's, based in Westborough, Mass., said it plans to raise approximately $690 million in new debt to execute a $643 million dividend to its owners — affiliates of Leonard Green Partners and CVC Capital Partners, who took the company private through a leveraged buyout a year ago.

Read more: Leonard Green Completes BJ's Buy [4]

According to Moody's, "The downgrade to B2 reflects the increase in leverage that will result from BJ's paying a dividend of $643 million to its sponsors and certain members of management, which represents a little more than the total equity invested in the company in September 2011 in conjunction with the company's LBO. The result of this highly aggressive shift in financial policy will be debt-to-EBITDA pro forma for this proposed dividend of well over 6 times, which is the downgrade trigger that was set for the B1 rating, and interest coverage will reduce to close to 1.3 times."

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