Community Distributors Inc. Rtgs Assigned by S&P.NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/6/97-- Standard & Poor's today assigned its single-'B'-plus rating to Community Distributors, Inc.'s $80 million senior unsecured notes and its double-'B' bank loan rating to the company's proposed revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. bank facilities. A corporate credit rating of single-'B'-plus also was assigned. The speculative-grade rating of Community Distributors is based on its highly leveraged balance sheet and thin cash flow coverage ratios Cash flow coverage ratio The number of times that financial obligations (for interest, principal payments, preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental payments, and depreciation. , along with rising profit pressure and competition. These factors are somewhat offset by the company's solid regional market position in the favorable drug store industry. Somerville, N.J.-based Community Distributors operates two store formats, including 26 Drug Fair drug stores and 17 Cost Cutter discount stores, in the northern and central New Jersey markets. Favorable growth prospects, as well as significant advantages that drug store chains have over independents, bode well for continued moderate growth and market share penetration. Declining pharmacy margins will still pressure profitability as the influence of managed care increases. As such, the company will focus on driving sales of higher-margined front-end merchandise and on keeping up with expense reduction initiatives. Meanwhile, the company's Cost Cutter format, which operates in a niche segment of the discount industry, is subject to increasing competition and price pressure from larger discounters such as Wal-Mart. Following the leveraged recapitalization Leveraged Recapitalization A strategy where a company takes on significant additional debt with the purpose of either paying a large dividend or repurchasing shares. The result is a far more financially leveraged company. Notes: This is often used in risk arbitrage. , in which stockholders of the company withdraw a $45 million dividend, Community Distributors will be highly leveraged. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma , lease-adjusted debt to earnings before interest, taxes, depreciation, and amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) is 5 times (x), and is not likely to improve significantly over the near term. The ratio of EBITDA to pro forma interest is adequate for the rating at 2x coverage. The company's proposed bank credit facility is rated double-'B', two notches higher than the corporate credit rating, pending review of final documentation. The $20 million secured revolving credit facility will limit borrowings to a borrowing base consisting of eligible accounts receivables and eligible inventory. The facility is secured by substantially all of the company's assets. The collateral value is more than sufficient to fully cover the bank facility under a simulated payment default. OUTLOOK STABLE Strong industry fundamentals and a good regional market position provide support for the rating, while competitive threats and substantial debt balances limit a higher rating. -- CreditWire CONTACT: Wayne F Stefurak, CFA (Computer Fraud and Abuse Act of 1986) Signed into law in 1986, the CFA was a significant step forward in criminalizing unauthorized access to computer systems and networks. The Act applies to "federal interest computers" that include any system used by the U.S. , New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , 212/208-8601 |
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