OREANDA-NEWS. S&P Global Ratings today assigned its 'BBB' issue-level ratings to Dollar Tree Inc.'s new revolver, term loan A, and term loan B. The recovery rating is '1', reflecting our expectation for very high (90% to 100%) recovery in the event of default. We also revised the recovery rating on the company's $2.5 billion 5.75% senior notes due 2023 and $750 million 5.25% senior notes due 2020 to '5' from '6', resulting in an upgrade of those notes to 'BB' from 'BB-'. The '5' recovery rating indicates our expectation for modest recovery at the high end of the 10% to 30% range. This follows a leverage-neutral refinancing to upsize the company's term loan A and repay a portion of its existing term loan B. All other ratings, including the 'BB+' corporate credit rating and stable outlook on the company remain unchanged.

The improved recovery on the senior notes comes given increased amortization on the senior secured credit facilities, resulting in lower principal and interest outstanding in a payment default scenario. We have valued the company on a going concern basis using a 6.0x multiple applied to our projected emergence-level EBITDA of around $980 million.

Same-store sales increased 1.2% in the quarter ended July 30, 2016, and leverage is now below 4.0x for the latest 12 months, down from the low-5.0x range in the year-ago period. Overall, we expect Dollar Tree to continue deleveraging over the next year given solid operating performance and financial policies aimed at debt reduction.