Research: Rating Action: Moody’s Downgrades GOBP’s SGL Rating to SGL-3; confirms B1 CFR

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New York, November 21, 2022 — Moody’s Investors Service (“Moody’s”) today downgraded the Speculative Liquidity (“SGL”) rating of GOBP Holdings, Inc. (“GOBP”, the parent company of Grocery Outlet Inc. ) to SGL-3 from SGL-1. At the same time, Moody’s affirmed all of GOBP’s ratings, including its B1 corporate family (“CFR”) rating, B1-PD probability of default (PDR) rating and secured term loan of Senior B1 and the Senior Secured Revolving Credit Facility. The outlook remains stable.

The downgrade of GOBP’s speculative-grade liquidity rating to SGL-3 (adequate) from SGL-1 (very good) reflects the fact that its $100 million revolving credit facility matures in less than 12 months on October 23, 2023, potentially eliminating external liquidity from GOBP. However, GOBP’s liquidity remains adequate as the revolver is currently not drawn, the company had unrestricted on-balance sheet cash of $107 million as of October 1, 2022 and generated $43 million of free cash flow for the twelve months ended October 1, 2022.

The company’s CFR affirmation reflects the belief that GOBP’s operating performance will remain relatively stable as many consumers will be attracted to the company’s extreme value proposition in light of the uncertain macro environment and the current economic downturn. inflation continues. Moody’s also believes that GOBP will maintain a conservative capital structure with no intention of pursuing leveraged trading.

Downgrades:

..Issuer: GOBP Holdings, Inc.

…. Speculative liquidity rating, downgraded to SGL-3 from SGL-1

Statement:

..Issuer: GOBP Holdings, Inc.

…. Classification of the family of companies, confirmed B1

…. Probability of default rating, confirmed B1-PD

…. Senior secured bank credit facilities, confirmed B1 to (LGD4) from (LGD3)

Outlook Actions:

..Issuer: GOBP Holdings, Inc.

….Outlook remains stable

RATINGS RATIONALE

GOBP’s B1 CFR reflects its small size compared to its larger, better capitalized counterparts, its low barriers to entry and its relatively high financial leverage with a debt/EBITDA of around 4.8x. As product cost inflation and rising labor, shipping and transportation costs will be headwinds over the next 12 months, Moody’s expects indebtedness further decreases to about 4.6x. This improvement reflects management’s continued focus on improving its customer value proposition and competitive price positioning, along with the growth of new stores, which will result in continued growth in sales and earnings. comparable stores, as has been the case in recent years. In addition, sales of high-margin natural, organic and specialty products have increased and management continues to make opportunistic inventory purchases at attractive prices. Positive rating factors also include GOBP’s attractive market niche and a strong track record of organic growth and new stores. The company prepaid $75 million of its senior secured term loan in April from cash and has $385 million of principal remaining.

The stable outlook reflects Moody’s expectation that the company’s operating performance and credit metrics will continue to improve due to improved profitability driven by organic growth and new stores. The outlook also reflects Moody’s belief that GOBP will maintain adequate liquidity and seek to refinance its revolving credit facility over the next 3-6 months.

Moody’s revised GOBP’s credit impact score to a CIS-4 from a CIS-3 and its governance issuer profile score to a G-4 from a G-3. This reflects GOBP’s aggressive financial strategy and risk management. The company’s $100 million revolving credit facility will expire in less than 12 months in October 2023 and, if not renewed in a timely manner, will negatively impact its liquidity. GOBP continues to face a moderately negative exposure to environmental risks primarily reflecting its exposure to carbon transition, natural capital and physical climate risks. The company’s relatively small scale (compared to its peers) limits its ability to offset the physical climate risk associated with its locations. GOBP also continues to face neutral to low exposure to social risks, primarily due to its moderately negative exposure to responsible production and customer relations.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

An upgrade would require stable margins, consistent same-store sales growth, and significant improvement in credit metrics while maintaining good liquidity. Quantitatively, ratings could be improved if EBIT/interest stays above 2.5x and debt/EBITDA stays around 4.25x.

The ratings could be lowered if same-store sales and profitability trend lower, financial policies become aggressive or liquidity deteriorates. Quantitatively, ratings could be downgraded if EBIT/interest is held below 1.75x or debt/EBITDA is held above 5.0x.

Based in Emeryville, California, GOBP Holdings, Inc. is an extreme value food, beverage and consumer goods retailer. The company operates 431 stores in CA, OR, WA, ID, NV, NJ and PN. The company is public. Revenue for the last twelve months ended October 1, 2022 was approximately $3.4 billion.

The main methodology used in these ratings is Retail published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356421. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the announced credit rating metric(s) described above.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Chedly Louis
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Margaret Taylor
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653


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