Independent research house Gimme Credit is criticizing Standard & Poor's for painting the entire grocery sector with a broad brush after its downgrade of three major chains to the perch of the junk cliff last week. S&P last week downgraded Kroger Co., Safeway Inc. and Albertson's Inc. all to triple-B minus with stable outlooks. Yet Craig Hutson, senior bond analyst at Gimme Credit, argued the companies have different credit make-ups, with Kroger and Safeway actually improving their credit positions.
"From a timing standpoint, the action is overdue, but now may not be the right time given margins are improving," Hutson explained. And the market agrees: despite similar ratings, Hutson noted Kroger's 7 1/2s of '31 are at 170 basis points over Treasuries, with Safeway's 7 1/4s of '31 at 180bps over and Albertson's 8s of '31 at 205bps over.
Mary Lou Burde, director at S&P, acknowledges there are differences between the credits but defends S&P's decisions. "When we took a hard look at the industry, we didn't think there were enough differences to justify different ratings," she commented.
