Credit Rating
New credit facility
On November 12, 2002, Ahold's subordinated debt rating of Baa2 and senior unsecured debt rating of Baa1 were put
on review for possible downgrade by Moody's Investor Service. On January 17, 2003, Moody's Investor Service downgraded
Ahold's subordinated debt and senior unsecured debt two notches to Ba1 and Baa3, respectively. On January 24, 2003,
Standard Poor's downgraded Ahold's long-term local issuer credit and long-term foreign issuer credit rating from BBB+
to BBB with a stable outlook. After the announcements on February 24, 2003, Standard Poor's downgraded Ahold's
long-term foreign issuer credit and long-term local issuer credit two notches from BBB to BB+ with a negative outlook and
Ahold's short-term foreign issuer credit and short-term local issuer credit were downgraded from A-2 to B. The same day
Moody's Investor Service put Ahold's subordinated debt and senior unsecured debt on review for possible downgrade, and
downgraded them the next day to B2, and B1, respectively, with both ratings remaining on review for possible downgrade.
Further, because Ahold was downgraded to a non-investment grade, Moody's Investor Service released an Issuer Rating of
B1 and a Senior Implied Issuer rating of Ba3, with both ratings on review for possible downgrade. On May 8, 2003,
Standard Poor's downgraded Ahold's long-term foreign issuer credit and long-term local issuer credit each to BB-, and
both remain on negative outlook. The USD 2 billion revolving credit facility contains a step up provision which increases
the pricing for each notch downgrade below Baa3 and BBB- by 0.75%.
On March 3, 2003, the Company replaced the 2002 Credit Facility, under which USD 550 was drawn and USD 150
in letters of credit were outstanding as of February 24, 2003, with the 2003 Credit Facility. The 2003 Credit Facility
provides for aggregate borrowings of up to EUR 600 and USD 2.2 billion in two tranches. The borrowings under the
EUR 600 tranche and under the USD 1,285 tranche are collateralized by a pledge of shares of Ahold's significant Dutch
and U.S. subsidiaries. Ahold may use borrowings under the 2003 Credit Facility to refinance intercompany indebtedness,
fund intercompany loans, provide for working capital and for general corporate purposes.
The 2003 Credit Facility contains customary information and financial covenants. The information requirements include
delivery of monthly, quarterly, and annual results and certain information on liquidity. In addition, the Company must
report on a quarterly basis on compliance with the interest coverage ratio. This ratio, determined on a four quarter rolling
average basis, is 2.25:1.00.
Under separate Receivable Sale and Related Agreements, USF and Alliant sell, on a revolving basis, their eligible trade
receivables to the Receivable Companies. In connection with these receivables securitization programs, the Company has
entered into guarantee agreements pursuant to which the Company has agreed to guarantee some of the obligations of
USF and Alliant as servicers and certain of the obligations of the Receivable Companies. As a result of amendments to the
underlying agreements in July 2003, Ahold will be required to consolidate the USF securitization program, as a result of
which, the USF receivables securitization program will no longer be an off-balance sheet obligation. For a discussion of the
receivables securitization programs, please see Note 19.
Under both of these financing arrangements, the Company is subject to certain financial and non-financial covenants
including the maintenance of certain ratios, restrictions on additional indebtedness and payments of cash dividends and
restricted payments. The more restrictive of these covenants requires that the Company maintain an interest coverage ratio
(defined as operating results adjusted for certain factors, to net interest expense) ranging from 2.25:1 (2003 credit
facility) to 2.5:1 (securitization), determined on a rolling four-quarter average basis. As of October 1, 2003, the Company
obtained the following waivers:
- As discussed above, the Company is party to a receivables securitization agreement, which required the Company to
submit audited annual financial statements by September 30, 2003. The agreement was amended, and the deadline
for financial statement submission has been extended to December 5, 2003.
- As discussed above, in March 2003, the Company entered into a new Credit Facility, which requires, among other things,
that the Company provide certain financial information to the lender. The Company has not met the deadlines set forth in
the new Credit Facility. As a result, the Company has reached an agreement with the banks to extend these deadlines,
based on recent events.
The Company has obtained agreement from the counterparties that the quarterly certificates of compliance with the above
mentioned ratios will not be required until quarterly financial statements are available. Management also believes that it
will be necessary to reach an agreement with the banks as to the new methodology on which to base these financial ratio
calculations in light of the Company's accounting for the deconsolidation of joint ventures.
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