Kroger Issues $1 Billion Debt to Cover Roundy's Acquisition


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Wed. January 27th, 2016 - by Christofer Oberst

CINCINNATI, OH – Following Kroger’s $800 million acquisition of Roundy’s, the company has issued $1 billion in debt to help cover the purchase.

The move comes as no surprise to analysts who have followed the deal since November, when Kroger CFO Mike Schlotman said that Kroger would issue debt to pay for the acquisition.

This latest debt was rated as Baa2, which is the ninth highest rating in Moody’s Long-term Corporate Obligation Rating.

Keith Dailey, Spokesman, Kroger“We expect to maintain our current investment grade credit rating,” company spokesman Keith Dailey told the Cincinnati Business Courier. “All three rating agencies confirmed Kroger’s credit rating after we announced this bond offering.”

In Kroger’s Securities and Exchange Commission filing on January 15, the company said that it raised $300 million by issuing debt at 2 percent that’s due in 2019, then another $300 million at 2.6 percent due in 2021, and lastly, $500 million in debt at 3.5 percent due in 2026, the Cincinnati Business Courier reports.

At first glance, $1 billion may seem like a big enough number to put a dent in Kroger’s credit profile, but analysts don’t seem to be too worried.

In a report, credit analyst Carol Levenson wrote that Kroger should be able to rebuild its debt ratios with strong cash flow within the next couple of years.

“…We view the Roundy’s acquisition favorably, and note Kroger’s conservative financial policies, consistently positive identical store sales (excluding fuel) results, strong private-label sales and brand innovation, and scale and regional diversification, which all bolster its credit profile,” Levenson said in her report, according to the Cincinnati Business Courier.

The deal adds 151 stores, 101 pharmacies, plus two Wisconsin-based distribution centers to Kroger’s massive portfolio of over 2,400 stores nationwide. In 2014, Roundy’s reported sales of $4 billion, while Kroger had $108 billion in sales last year.

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