On April 12, 2018, S&P Global Ratings lowered its corporate credit rating on Petco Holdings, Inc. to CCC+ from B- and its $2.5 billion first-lien term loan due 2023 to CCC+ from B-. According to S&P Global, the downgrade reflects that the Company could underperform its forecast based on the increasingly challenging market for specialty pet retailers and the potential for further shortfalls in the Company’s efforts to improve performance trends. S&P further states that the fourth-quarter same-store sales were negative high-4%, which follows a decline in the mid-3% area in the third-quarter. S&P expects prolonged weakness in the Company’s same-store sales trends to continue as e-commerce players and mass retailers meaningfully increase their market share at the expense of sales from pet specialty retail stores. This puts the Company’s profit and cash flow trends at risk. S&P believes the low debt pricing on the Company’s debt could be a near-term incentive for more than trivial debt repurchases below par. Read more on distressed companies.
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