Smart & Final Stores Inc. 'B' ICR Placed On CreditWatch Negative On Announcement Of Going-Private Transaction


  • Apollo Global Management LLC is acquiring Smart & Final Stores Inc. (SFS), a value-oriented food retailer operating under the Smart & Final and Smart Foodservice banners, and plans to turn the company back into a privately held business.
  • We expect that Apollo will increase SFS' leverage to fund the acquisition, as is typical with private-equity sponsors, which will weaken the company's credit metrics.
  • Therefore, we are placing our 'B' issuer credit rating on SFS on CreditWatch with negative implications. The issue-level ratings are not affected as we expect them to be repaid.
  • The CreditWatch reflects the potential for the ratings to be lowered upon close of the transaction, or when more details around the pro forma capital structure for the company are announced. We intend to resolve the CreditWatch after we receive final details of the company's capital structure and business strategy under its new ownership.
On April 18, 2019, S&P Global Ratings placed its 'B' issuer credit rating on Smart & Final Stores Inc. on CreditWatch with negative implications. The issue-level ratings are not affected as we expect them to be repaid.
The CreditWatch placement reflects the potential that we will lower our issuer credit rating on SFS if Apollo increases its leverage to fund the acquisition, materially weakening the company's credit measures. Under our current base-case forecast, we assume that SFS' adjusted debt to EBITDA will be around 6.0x, which is close to our 6.5x downgrade threshold for the current rating.
We expect to resolve the CreditWatch negative placement following our review of SFS' proposed capital structure and business risk profile. We could lower our ratings on the company if we expect it to sustain elevated leverage of more than 6.5x on an adjusted basis. We could also lower our ratings at a lower leverage level if we believe the company's business has become materially weaker due to the separation of its operating units.
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