S&P CUTS DH DEBT RATING, CITES MERVYN’S MARGIN WOES
NEW YORK — Standard & Poor’s lowered its ratings on $4.8 billion of Dayton Hudson Corp. senior debt to triple-B-plus from single-A.
The rating agency also cut its rating on Dayton’s commercial paper to A-2 from A-1. The ratings outlook is stable.
S&P said profits at Dayton are “still sliding,” mainly due to ongoing problems at Mervyn’s, “where margins are dramatically lower than they were about five years ago.”
“This along with doubt that efforts to reposition Mervyn’s will result in a meaningful or sustained turnaround, is factored into the downgrade,” S&P said.
S&P further said that DH plans to use much of its financial flexibility in an extensive capital spending program with upwards of $1.4 billion anticipated for 1996. “As a result, additional external financing is probable and leverage should remain relatively high at around 60 percent.”
According to the rating agency, DH’s department store business “does not appear to be keeping pace with other competitors in the consolidating sector.” The agency noted, “With only 64 stores, Dayton Hudson is a good regional player, but may be at a growing disadvantage to much larger operators in terms of market presence and buying clout.”
S&P added that “while Target is expected to be very successful, heavy capital outlays for new and remodeled discount stores as well as for a growing entry in the supercenter format are expected to keep financial ratios from improving.”