Sensing a $3 billion deal could struggle in the current market, Kroger Company opted to avoid rolling up two separate credit facilities and instead went to market with a smaller deal. The company, which merged with Fred Meyer a year ago, opted to refinance and reduce its existing $1.9 billion deal, cutting it to $1.6 billion. Larry Turner, treasurer, said the company will refinance the roughly $1.1 billion existing Meyer facility next year. "We expect that a year from now we'll need less money," he explained. Turner said the new facility offers additional flexibility. Kroger's former credit was done in 1997, and the Meyer facility a year later, when "it was a sweet spot for borrowers. The lenders would call it a trough."
The Cincinnati, Ohio-based company has become the nation's leading grocer through a series of acquisitions. Turner says even in a tough market, his sector does well. "We're in the best sector to be financed in a slow market; people still eat," he said. Moody's Investors Service rated the company's debt BBB-, and it's on positive watch. Pricing for the new deal was comparable to the original facility, he said. "For a grid, it's comparable. On future ratings and ratios, it won't be as good," he said.
Salomon Smith Barney and J.P. Morgan Chase lead the deal, which did not go out to bid. "I don't know if going to bid is effective," said Turner. "If we're not getting the best deal, we know it." He credited the leads for their professionalism and for "knowing the market."