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Fitch Maintains Safeway Inc.'s Ratings on Negative Watch

CHICAGO--(BUSINESS WIRE)--Fitch Ratings maintains the ratings for Safeway Inc. on Negative Watch in anticipation of Safeway's acquisition by AB Acquisition LLC, which is owned by a Cerberus Capital Management, L.P.-led investor group. Fitch currently rates the company's Long-term Issuer Default Rating (IDR) 'BBB-'. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

The transaction is expected to close in the fourth quarter pending Federal Trade Commission (FTC) approval. Post the transaction, lease-adjusted financial leverage is expected to be in the 6x range versus 3.7x for Safeway at June 14, 2014, which would be indicative of the 'B' category.

The merger of the Safeway and Albertsons businesses would create a stronger #2 player in the supermarket sector. The combined company would enjoy strong local market shares in areas where the two companies overlap, including the west coast, mountain states and Texas. The combination would result in an improved competitive profile in key markets on top of the expected cost and buying synergies.

RATING SENSITIVITIES

Positive: A positive rating action is not anticipated.

Negative: Safeway Inc.'s post-acquisition capital structure is consistent with the 'B' category.

Fitch currently rates the following:

Safeway Inc.:

--Long-term IDR 'BBB-';

--Senior unsecured notes 'BBB-';

--$1.5 billion bank credit facilities 'BBB-';

--Short-term IDR 'F3';

--Commercial paper 'F3'.

The ratings are on Rating Watch Negative.

Additional information is available at 'www.fitchratings.com.'

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=853275

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Contacts

Fitch Ratings
Primary Analyst
Philip Zahn, CFA
Senior Director
+1-312-606-2336
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Monica Aggarwal, CFA
Senior Director
+1-212-908-0282
or
Committee Chairperson
Sean Sexton
Managing Director
+1-312-368-3130
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com