CORPORATESISSUER COMMENT 7 MAY 2015THE KROGER CO. (KR)Moodys Senior Unsecured Rating Baa2Moodys Outlook STABond-Implied Rating Baa2CDS-Implied Rating A2EDF-Implied Rating A3As of 05/06/2015ANALYST CONTACTSAllerton G. Smith 212-553-4058 Sr Dir-Sr Research Analyst allerton.smith@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Market Signals ReviewThe Kroger Co.: Market-Implied Ratings Drop The CDS-, EDF'- and bond-implied ratings for Kroger have all moved lower recently (Figure 1).FIGURE 1. KROGER: MOODYS AND MARKET-IMPLIED RATINGS, LAST 365 DAYS (DAILY DATA)The CDS-implied rating for Kroger was A3 a year ago. In December of 2014 it began a gradual ascent to Aa2. The last day it was Aa2 was on April 10, and it has slipped lower by three notches to A2 since then.Krogers EDF-implied rating was Baa2 on May 6, 2014 (Figure 1). It climbed to Aa3 on multiple dates between January 8 and March 14. However, it recently deteriorated by three notches to A3.MOODY'S ANALYTICS CORPORATES2 7 MAY 2015 MARKET SIGNALS REVIEW : THE KROGER CO.: MARKET-IMPLIED RATINGS DROPA year ago the bond-implied rating for Kroger was Baa1. It quickly climbed by two notches to reach A2 in late July and early August, 2014. Since September 2014 it fluctuated between Baa1 and Baa2, where it is now.According to our ratings gap-conditioned transition matrices, companies rated Baa2 with a bond-implied rating of Baa2 outperformed the broad market 32% of the time over the following 12 months, matched the markets performance 34% of the time, and underperformed the broad market 32% of the time.The EDF-implied ratings gap advanced from zero a year ago to +2 notches now; however, the current level is three notches below its recent apex of +5 notches (Figure 2). The bond-implied ratings gap weakened from +1 notch 12 months ago to zero notches. The CDS-im...
