NEW YORK — Fitch Ratings here said Wednesday it has downgraded its long-term issue default rating on Safeway to BBB-minus from BBB and its short-term IDR to F3 from F2, with a stable rating outlook.
The action is based on Fitch's expectations that Safeway will use a portion of the proceeds from a new notes issue and a $700 million term loan to repurchase stock, "[which] reflects a deviation from Safeway's previous financial strategy under which it repaid debt with a portion of its annual free cash flow after dividends while dedicating the majority of its free cash flow to share repurchases."
Moody's Investors Service here said it has placed Safeway's ratings on review for a possible downgrade following the chain's announcement it would raise $1.5 billion in debt — $800 million in senior unsecured notes to refinance notes maturing in 2012 and $700 million likely to be used for share repurchases.
With Safeway's debt levels expected to increase, "resulting in a weakening of credit metrics," Moody's noted, it said it it anticipates downgrading Safeway's senior unsecured rating one notch to Baa3 from Baa2.
