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Moody’s to Give Investment-Grade Rating to Possible Kmart Offering

December 29, 1995

TROY, Mich. (AP) _ Moody’s Investors Service Inc. will give an investment-grade rating to Kmart Corp.’s proposed issue of $1 billion worth of new stock and bonds if the struggling retailer goes through with the sale.

The rating is still subject to a possible downgrade, Moody’s said.

The credit-rating agency’s move Thursday came a week after Kmart reached an agreement to immediately pay back $548 million of its real-estate debt if its credit rating should fall below investment grade, or to ``junk″ status.

Company spokeswoman Mary Lorencz declined to comment Friday on the latest rating.

Last week, Moody’s lowered the discount retailer’s credit rating to the lowest investment grade because of expected weak fourth-quarter sales. That downgrade, which affected about $4.3 billion worth of debt, had been expected for weeks.

Kmart filed documents earlier this month with the Securities and Exchange Commission proposing to sell the $1 billion in securities to raise cash.

Moody’s said although the discount retailer’s finances appear to be stabilizing, the tough retail climate could hinder its recovery. Kmart has had 11 consecutive quarters of lower earnings or losses.

In Kmart’s favor, Moody’s noted improved cash flow and the company’s recent decision to eliminate its stock dividend, saving $220 million.

``Their (profit) margins and sales seem to be improving,″ said Pam Stubing, a Moody’s vice president.

She noted that Kmart was likely to continue to receive support from its vendors and suppliers. ``(Due to) the size of its sales, national brand manufacturers cannot ignore Kmart,″ she said.

Kmart’s stock tumbled sharply earlier this month after rumors resurfaced that the retailer was considering bankruptcy-court protection from its creditors. Kmart has denied the rumors.

Kmart stock closed Thursday on the New York Stock Exchange at $7.12 1/2, up 62 1/2 cents. It was unchanged Friday in afternoon trading.

The Troy-based company operates 2,172 domestic discount stores and 169 Builders Square home-improvement outlets.

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