After almost nine years of trading at ''junk'' status, the Kroger Co.'s bonds have been upgraded to investment quality, a turn that should reduce interest expenses, help stockholders and further cut the debt that initially made Kroger a high-risk investment.
Elaine Francolino, senior analyst at Moody's Investor Service, said the firm upgraded its long-term ratings on Kroger based on improvements in operating and financial performance and the expectation that it will continue. She said the company's size allows it to achieve operating efficiencies, and those efficiencies are expected to improve as the company grows.
''Kroger operates in an industry with intense competition, but it has healthy market share in its markets,'' she said.
Moody's upgraded Kroger's senior rating - for unsecured notes and certificates, bank credit facility, medium-term-note program and industrial revenue bonds - to investment grade, or Baa3, which places it just inside the acceptable level.
Joseph Pichler, Kroger's chairman and chief executive, called the rating ''a certificate of good health, a certificate of good housekeeping.
''That's a reflection of the strong performance that our operators have achieved over these nine years.''
Kroger's rating had been investment grade for most of its modern existence, until an attempted takeover in 1988 prompted the company to borrow $5.3 billion to pay a special dividend of about $40 each to shareholders to fight off the attempt.
Kroger has since reduced its debt to $3.4 billion. Its interest expenses declined to about $300 million in 1996 from $649 million in 1989. Net income, meanwhile, advanced to $352.7 million in 1996 from a $72.7 million loss in 1989.
As its financial status strengthened, the stock appreciated, closing at $52.12 1/2 Tuesday, from almost $9 nine years ago.
Mr. Pichler said the upgrading should carry several benefits:
Kroger will be able to borrow at lower interest rates and from more lenders. Mr. Pichler estimates that debt will be further reduced by $500,000 this year and $2 million or $3 million in subsequent years as a result of the ratings improvement.
The stock value should increase as Kroger becomes available to those who buy only investment grade investments.
Savings from lower interest rates will free up cash for further investments, which should lead to expense reductions and debt-protection measures.
