Fitch Ratings and Standard & Poor's Ratings Services on Wednesday downgraded the ratings on office-supply company Staples Inc. by one notch and removed the ratings from negative watch.
Fitch cut the company's long-term issuer default rating, as well as the ratings on its bank credit facility and senior notes, to "BBB" from "BBB+." A rating of "BBB" is two notches above junk status.
S&P also lowered its corporate credit and senior unsecured issue ratings on the Framingham, Mass.-based company to "BBB" from "BBB+." The outlook is stable.
The ratings actions follow Staples' $2.7 billion acquisition of Dutch office supply company Corporate Express. Additionally, S&P raised the corporate credit rating on Corporate Express to "BBB" from "BB-" and removed it from CreditWatch.
Both rating agencies noted the substantial debt Staples will acquire from the acquisition but said they expect the company to remain financially disciplined and use future cash flow to pay down debt over time.
"We expect that Staples would apply a substantial portion of its cash flow to debt reduction and strengthen credit measures in the near term despite ongoing challenges in the office supply market that should persist throughout 2008," said S&P credit analyst Mark Salierno in a statement.
The acquisition will expand the company's North American delivery business, as well as allow Staples to enter new international markets.
Corporate Express agreed to the deal, at 9.25 euros per ordinary share, on June 11.
On Wednesday, Staples said it will offer a post-acceptance period to allow Corporate Express shareholders to tender their securities after the tender offer ended.
The post-acceptance period starts Thursday and expires July 16. The companies said such a period is customary in the Netherlands.
Staples shares fell 69 cents, or 2.8 percent, to $23.61 in afternoon trading. Shares have traded between $19.69 and $25.85 in the past 12 months.
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