S&P lifts Ahold to investment grade; CDS tighter

LONDON Fri May 4, 2007 6:48am EDT

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LONDON May 4 (Reuters) - The cost of insuring debt of Ahold ALHN.AS fell on Friday after credit agency Standard & Poor's reinstated its investment-grade corporate credit rating thanks to the sale of the retailer's U.S. Foodservice unit.

Ahold said late on Wednesday it had sold its U.S. unit for $7.1 billion, more than had been expected, which propelled its shares to four-year highs.

After tightening by about six basis points on Thursday, five-year credit default swaps on Ahold fell a further five basis points on Friday to 55 basis points, a trader said, after the S&P upgrade to BBB- from BB+ with a stable outlook.

That boosted S&P's credit rating on Ahold to investment grade from "junk" status, although its unsecured bonds remain in speculative-grade, rising to BB+ from BB.

"The disposal of Foodservice will have a limited impact on the group's business risk profile, but Ahold's commitment to dedicating 2 billion euros to debt reduction will substantially strengthen the financial risk profile," said S&P credit analyst Nicolas Baudouin.

However, S&P said the possibility of further upgrades for Ahold was "very remote" and would require, among other things, an improvement in profitability of its U.S. businesses.

Analysts had expected the U.S. divestment would move Ahold's corporate rating back to investment grade soon.

Fitch Ratings upgraded Ahold to BB+ from BB on Thursday, still one notch below investment grade. Fitch gave Ahold's rating a positive outlook saying sales of other non-core businesses were needed to improve its ratings further.

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