Fitch Downgr Kmart's Rtgs; Changes Rtg Outlook To Negative.Business Editors CHICAGO--(BUSINESS WIRE)--Jan. 7, 2002 Fitch fitch: see polecat. has lowered it ratings of Kmart Corporation as follows: bank facility to `BB-' from `BB+'; notes and debentures to `B+' from `BB+'; and convertible preferred securities to `B-' from `BB'. Approximately $3.8 billion of debt securities and $890 million of preferred securities are affected by the downgrades. At the same time, the Rating Outlook has been revised to Negative from Stable. The downgrades reflect Kmart's weakened weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. operations that have
produced materially lower cash flow and higher financial leverage in
2001. Kmart's sales momentum turned negative during the latter part
of 2001 as a price cutting initiative in consumable A material that is used up and needs continuous replenishment, such as paper and toner. "The low-tech end of the high-tech field!" items failed to
generate additional store traffic while competition remained fierce. As
a result, the company's credit protection measures will be
considerably worse than Fitch had anticipated.
Despite these trends, Fitch is comfortable with Kmart's near term liquidity position. Kmart is expected to have sufficient capacity on its bank facility to cover any cash flow shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. . Also, Fitch expects that Kmart will be successful in renewing its bank facility, which matures in December 2002, albeit with higher rates, more restrictive convenants, and possibly security. The higher rating for the bank facility reflects the banks' superior position and ability to renegotiate re·ne·go·ti·ate tr.v. re·ne·go·ti·at·ed, re·ne·go·ti·at·ing, re·ne·go·ti·ates 1. To negotiate anew. 2. To revise the terms of (a contract) so as to limit or regain excess profits gained by the contractor. terms ahead of the noteholders. Kmart's operations should begin to improve when the retail environment picks up, but its ability to compete with the other national discounters remains a concern. Kmart has made some progress in improving its retail execution and customer service, and will be overhauling its distribution infrastructure during 2002. Implementing new systems could be disruptive disruptive /dis·rup·tive/ (-tiv) 1. bursting apart; rending. 2. causing confusion or disorder. over the short-run, but should support longer-term improvement in the company's supply chain costs and in-stock position. The Negative Rating Outlook takes into consideration the challenges inherent in executing new strategies, as well as longer-term competitive pressures, which will intensify in·ten·si·fy v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies v.tr. 1. To make intense or more intense: with the continued rapid growth of Wal-Mart and Target, among others. Kmart is expected to adjust capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. in 2002 to levels that can be financed internally. While this is a necessary step over the near term, reduced investment levels could dampen the company's competitive position over time. |
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