Moody’s downgrades Office Depot rating

New York City Moody's Investors Service on Tuesday downgraded its rating of Office Depot on concerns about the company's difficulty navigating in the tough economy and its weakening credit profile.

Moody's downgraded its corporate family and probability of default ratings to "B2" from "B1," and the company's senior unsecured notes to "Caa1" from "B3." Office Depot's speculative grade liquidity rating was upgraded to an "SGL-2" from an "SGL-3." The outlook is negative.

While Office Depot's first-quarter results beat the company's expectations, results were still significantly below the same period of the prior year, Moody's noted.

Moody's said the negative outlook reflects the possible further deterioration in Office Depot's credit metrics, which it said are already considered weak for the current rating, that could occur during 2009.

Moody's senior analyst Charlie O'Shea said that a recovery in this segment may not occur until late 2009 or early 2010. And with Office Depot's concentration in economically hard-hit areas such as California and Florida, Moody's feels it likely that the company's credit profile could continue to deteriorate for the balance of the year.