NEW YORK — Standard & Poor's here said it is considering placing a “positive” outlook on its corporate credit ratings of retailers Kroger and Safeway, but the agency first wants to see how the retailers fare in respective contract negotiations in Southern California. (See Page 8.)
In a research note published last week, S&P credit analyst Stella Kapur noted that while competitive pressures served to deteriorate operating margins over the last five years, “we believe Kroger and Safeway are better competitors today than they were five years ago.” A positive outlook is considered the first step toward a higher corporate credit rating, which would reduce the cost of borrowing money and put S&P's rating on a similar level as Moody's “BAA2.” S&P in June 2005 lowered the credit rating on both companies from “BBB” to “BBB-”, or a step above “junk” status. S&P said it would consider an upgrade to BBB again if the companies can reduce lease-adjusted debt-to-equity rations of 2.7 times. Kroger was around 3.1 times and Safeway 3.0 times in recent periods.
