As the stock hit its third 52-week low in as many trading days, another wave of jitters swept through the ranks of Kmart suppliers Monday, following Standard & Poor's downgrade of Kmart's credit ratings and reports that at least one major factor had stopped checking the discounter.
S&P said its ratings downgrade action was based on "heightened concerns about Kmart's loss of financial flexibility in recent weeks." It also said that a "recent loss of supplier and investor confidence is troubling." S&P placed the ratings on CreditWatch with negative implications. Moody's Investors Service, a competing ratings agency, on Friday also downgraded Kmart's credit ratings.
In a related move Monday, Moody's even placed the debt of Fleming Cos. Inc. under review for possible downgrade. Fleming has a $4.5 billion supply-chain arrangement in which it will provide substantially all of the food and consumable products in current and future Kmart stores. The food giant said Monday that its business relationship with Kmart remains strong. Because of the seven-day invoice and payment terms incorporated in the companies' supply agreement, receivables from Kmart currently vary between $0 and $70 million, or less than 0.5 percent of Fleming's annualized sales. The supermarket giant said Kmart is current in its payments to Fleming.
While Kmart remains the focus of credit anxiety, Moody's on Monday also lowered the long- and short-term ratings of Gap Inc. to "Baa3" and "Prime-3," respectively, due to the continuing decline in Gap's financial performance. About $2.1 billion in debts were affected, and Moody's said it was continuing its review for possible downgrade.
Contributing to the jitters of Kmart vendors are reports from financial circles that at least one major factoring firm, GMAC Commercial Credit, had stopped checking Kmart. Harold Dundish, executive vice president, declined comment.
Another credit source told WWD that all of the major factors are still checking Kmart for their large clients, but may be adding a surcharge for the service. Financial sources also told WWD that vendors are still getting approvals for replenishment orders, and that it may be too early for decisions on new orders, pending Kmart's expected restructuring update this week.