Albertson's $3.1B 'F1' CP Prog Affd Flwg FTC Approv: Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--June 24, 1999--

Albertson's, Inc.'s $3.1 billion 'F1' rated commercial paper programs are affirmed by Fitch IBCA. The affirmation follows the company's agreements with the Federal Trade Commission (FTC) and the Attorneys General of California, Nevada, and New Mexico, that required the company to divest of 145 stores. As a result of these agreements, the company's merger with American Stores Co. closed yesterday. At the same time, the company has increased the size of its 3(a) 3 and 4(2) commercial paper programs, to $3.1 billion in the aggregate. The expanded programs will continue to be fully supported by bank credit facilities.

The affirmation reflects Albertson's leading position in the supermarket industry, geographic diversity, solid operating performance, and conservative financial profile. The rating also considers the company's appetite for future acquisitions as well as the competitive challenges within the supermarket industry, given its mature nature and low-to-no food price inflation environment.

As a result of its combination with American Stores Co., Albertson's is the second largest supermarket and drug store operator in the U.S., with revenues of more than $35 billion. Pro forma for the divestiture of 145 stores located in California, Nevada, and New Mexico, the combined entity operates about 1,600 supermarkets and combination stores and 780 stand-alone drugstores across 38 states.

Albertson's operating performance has historically surpassed its peer group due to its low operating cost structure. In the 12 months ended April 29, 1999 earnings before interest, taxes, depreciation, amortization, and rents (EBITDAR) as a percent of sales measured 9.0%, well ahead of its largest competitors. While pro forma EBITDAR margin will initially be somewhat lower due to American Store's higher cost structure, it is expected to return to historical levels fairly rapidly as Albertson's proceeds with its integration and applies its operating practices to the combined entity.

Albertson's has historically operated with a relatively low level of debt. For the 12 months ended April 29, 1999 the company reported leverage, defined as total debt plus eight times rents as a multiple of EBITDAR, of 1.4 times (x) and interest coverage of approximately 8.6x. Although the combination will cause bondholder protection measures to weaken, the company's pro forma financial profile remains commensurate with the rating assigned. Additionally, net proceeds of about $300 million from the divestitures will be used for debt reduction over the next two years.

Of concern is Albertson's continued appetite for acquisitions, given its significant level of activity during the past 18 months. During 1998 Albertson's completed five acquisitions, which added 67 stores (net) and five new states to its operating area. These transactions were small relative to the integration of American Stores (approximately 1,600 stores), and were essentially folded into existing Albertson's operations. The current integration presents a wider array of management and operational challenges, as the company has more than doubled the size of its store and revenue bases. However, to the extent that Albertson's effectively integrates its acquisitions and maintains its bondholder protection measures, this activity will not be viewed as a credit concern.