OREANDA-NEWS. S&P Global Ratings today assigned its 'BBB' issue-level rating to Cincinnati-based Kroger Co.'s $1.75 billion senior unsecured notes offering, which consists of three tranches of fixed-rate debt ($500 million three-year notes, $750 million of 10-year notes, and $500 million of 30-year notes). Our 'BBB' corporate credit rating and stable outlook on Kroger are unchanged.

We understand Kroger will use the proceeds to refinance $800 million of senior unsecured notes due in October 2016 and prefund a $450 million senior unsecured notes maturity in January 2017. The company will use the remaining proceeds to pay down part of the company's outstanding commercial paper balances, with expectations of about $1.3 billion commercial paper outstanding at fiscal year-end.

We estimate that pro forma for the proposed issuance and debt repayment, leverage and coverage will remain largely unchanged. The rating on Kroger reflects our expectation that operational performance will continue to improve slightly over the next year. Sustained effective pricing, merchandising, and customer loyalty will drive this improvement and will offset deflationary cost pressures. We acknowledge comparable sales momentum has slowed this year amid competitive pressures, though we expect continued overall topline offset in the coming year from the Roundy's acquisition.

We note that on Sept. 15, 2016, the company's board of directors approved an additional $500 share repurchase authority to supplement the June 2016 program. Overall, we believe the company will continue to pursue shareholder initiatives including repurchases designed for leverage in the low-3x range over the next 12 to 18 months.