S&P Global Ratings on Aug. 14 downgraded its issue-level rating on Staples Inc.'s proposed term loan to B+ from BB- and revised its recovery rating on the term loan to 3 from 2 due to the increase of the loan to $2.9 billion from $2.7 billion.

The office supply retailer expects to use debt proceeds, along with about $200 million under a revolving credit facility and some cash, to fund its announced merger with private equity firm Sycamore Partners.

S&P Global said that its recovery analysis reflects the ongoing secular challenges of the office supply business, while recognizing the value of Staple's large-scale and substantial market share.

The recovery rating of 3 indicates an expectation for meaningful recovery for term loan lenders in the event of a payment default, according to the rating agency.

S&P Global recently also downgraded Staples' corporate rating to B+ from BBB- due to concerns about the company's elevated leverage following the merger deal and the intense competition in the office supply distribution business.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.