TEXT-S&P puts Smart & Final 'B' rating on watch negative
Overview -- Ares Management (Ares) intends to acquire U.S.-based food retailer Smart & Final Holdings Corp. in a transaction that is valued at about $975 million. -- We believe Smart & Final's credit profile may weaken depending on the amount of new debt that might be used to fund the transaction. -- We are placing our 'B' corporate credit rating on Smart & Final on CreditWatch with negative implications. -- We expect to resolve the CreditWatch listing once we review the terms of the transaction and assess the impact on the company's financial risk profile. Rating Action On Oct. 15, 2012, Standard & Poor's Ratings Services placed its 'B' corporate credit rating on Commerce, Calif.-based Smart & Final Holdings Corp. on CreditWatch with negative implications. Rationale The CreditWatch placement follows the announcement that Ares intends to acquire Smart & Final from current owners Apollo Global Management LLC for about $975 million. We expect the transaction to close in the fourth quarter of this year. The transaction could weaken Smart & Final's financial ratios depending on the amount and the terms of the new debt in the capital structure following the transaction. If the transaction is financed with 60% to 70% debt, we believe operating-lease-adjusted leverage would be in the mid- to high-6x area. This ratio is significantly higher than the low-5x area that we had forecast for the end of 2012 before the transaction was announced. CreditWatch Before resolving the CreditWatch placement, we expect to meet with management and the new financial sponsors to discuss the new capital structure, business strategy, and financial policies. We expect to resolve the CreditWatch concurrently with the funding of debt issued to finance the transaction. Related Criteria And Research -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Analytical Methodology, April 15, 2008 -- Standard & Poor's Approach To Analyzing Employers' Participation In U.S. Multiemployer Pension Plans, May 30, 2006 Ratings List Ratings Affirmed, Recovery Ratings Unchanged; CreditWatch Action To From Smart & Final Holdings Corp. Corporate Credit Rating B/Watch Neg/-- B/Positive/-- Senior Secured B-/Watch Neg B- Recovery Rating 5 5 Smart & Final Stores LLC Senior Secured B-/Watch Neg B- Recovery Rating 5 5 Senior Secured BB-/Watch Neg BB- Recovery Rating 1 1 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.