DBRS Assigns Issuer Rating of BB(high) to Delhaize America

Dominion Bond Rating Service (“DBRS”) has today assigned an issuer rating of BB (high) to Delhaize America, Inc. (“Delhaize America” or the “Company”). The trend is Stable.

The above rating reflects Delhaize America’s steady progress in improving the operating performance of the business and gradually reducing the Company’s relatively high leverage despite the financial constraints imposed by increasing discount competition and significant capital requirements.

Delhaize America benefits from a low cost structure and convenient store base that allows the Company to compete effectively against a range of competitors including mass merchandisers such as Wal-Mart Stores, Inc. (“Wal-Mart”). Delhaize America’s primary banner, Food Lion, offers a combination of pricing below most grocery retailers (although slightly higher than Wal-Mart) and convenient locations that encourage frequent visits by consumers. The Company has increasingly focused on providing a broader range of fresh foods, produce, and ready-to-eat meals in a format that facilitates easy access and enhanced customer service. Delhaize America primarily operates in smaller east coast markets and enjoys strong market share in most of those communities. This market share provides advantages in areas such as logistics, promotions, real estate management, and staffing.

Delhaize America is the largest subsidiary of Etablissements Delhaize Frères et Cie “Le Lion” S.A. (“The Delhaize Group”) and enjoys the financial backing of that organization. The Delhaize Group also provides support in areas such as private label development, store design, and international purchasing.

Notwithstanding these strengths, Delhaize faces a key challenge in the continuing increase in discount competition. In addition to the continuing growth of Wal-Mart Supercenters, Delhaize America faces increased discount competition from non-traditional formats such as Aldi, Trader Joe’s, and dollar stores. Delhaize America is also relatively small compared to the large national grocery chains, which results in less buying clout with suppliers and smaller economies of scale.

Delhaize America’s ability to improve operating performance and to improve ratings will be dependent on the Company continuing to increase free cash flow generation, particularly after the Company completes the capital-intensive initiatives of repositioning the Florida operations from the Kash n’ Karry format to the Sweetbay Supermarket format, and the completion of the market renewal program in the larger Food Lion markets. A rating improvement will also be dependent on future capital initiatives including the magnitude of upstream payments to The Delhaize Group.

Note:
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.