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Moody's changes Dollar Tree's outlook to positive

Moody's Investors Service, ("Moody's") today changed the ratings outlook for Dollar Tree, Inc. ("Dollar Tree") to positive from stable. Moody's also affirmed Dollar Tree's Ba2 Corporate Family Rating, its Ba2-PD Probability of Default Rating and speculative grade liquidity rating of SGL-1. Additionally Moody's affirmed the Ba1 rating of the company's senior secured bank credit facilities and the Family Dollar legacy notes and the Ba3 rating of the company's senior unsecured notes.

The change in Dollar Tree's outlook to positive outlook reflects Moody's expectation that the integration of the acquired Family Dollar operations and store base will continue to be smooth and without any major issues which would result in a negative impact on the operating performance of the combined entity. The positive outlook also incorporates Moody's expectation that the company's credit metrics will demonstrate consistent and sustained improvement through increased EBITDA generation and debt prepayments.

"The company's strong operating performance demonstrates that the integration of Family Dollar stores is continuing as planned and management continues to focus on improving revenue growth and margins", Moody's Vice President Mickey Chadha stated. "Dollar Tree's credit metrics are therefore expected to continue to improve significantly through increasing EBITDA generation and significant debt prepayments", Chadha further stated.

RATINGS RATIONALE

Dollar Tree's Ba2 Corporate Family Rating reflects the company's sizable scale and its fixed and multi-price point product offerings. Moody's views the dollar store sector favorably and expects that it will continue to grow given its low price points and convenient locations especially for cash constrained consumers. Moody's expects Dollar Tree's credit metrics to improve in the next 12 months with debt/EBITDA getting to below 4.0 times as the company integrates its July 2015 acquisition of Family Dollar, maintains same store sales growth, increases profitability and prepays debt. Moody's views the Family Dollar acquisition as highly complementary in geographic and product profiles. Moody's believes that operating performance of the Family Dollar store base will continue to improve as management implements strategies to streamline sourcing and procurement, optimize product offerings, improve traffic and increase sales of higher margin variety and seasonal products in Family Dollar stores while also increasing the higher margin private label penetration in the Family Dollar stores. Operating efficiencies and strategic initiatives to minimize costs are also expected to reduce expenses and improve cash flow generation of the combined company. Ratings are also supported by the company's very good liquidity.

The following ratings are affirmed:

Corporate Family Rating at Ba2

Probability of Default Rating at Ba2-PD

Senior secured bank credit facilities at Ba1 (LGD2)

Family Dollar legacy senior secured notes at Ba1 (LGD2)

Senior unsecured notes at Ba3 (LGD5)

Speculative Grade Liquidity Rating at SGL-1

A ratings upgrade will require sustained positive same store sales growth, debt/EBITDA approaching 4.0 times, EBIT/interest sustained above 3.25 times, and very good liquidity.

Ratings could be downgraded if debt/EBITDA is sustained above 4.75 times and EBIT/interest is sustained below 2.5 times. Ratings could also be downgraded if liquidity deteriorates or if the integration of the acquired Family Dollar stores does not result in expected synergies and improvement in overall profitability of the combined company.

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Combined with Family Dollar Stores, Inc. the company has about 13,770 stores all across the U.S. and 227 stores in Canada under the Family Dollar, Dollar Tree, and Dollar Tree Canada banners. Proforma revenues of the combined companies is about $19.8 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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