Approximately $5 billion of rated debt affected
NOTE: On January 31, 2013, the press release was revised as follows: Corrected two items on the debt list:
SUPERVALU Inc. $850 million senior secured loan maturing 2018 at B1 (LGD2, 26%).
New Albertson’s Inc. Senior Unsecured Shelf and MTN programs at (P) Caa1 (LGD5, 71%). Revised release follows.
New York, January 28, 2013 -- Moody's Investors Service today assigned a B1 rating to SUPERVALU Inc.'s
("SUPERVALU") proposed new $1.5 billion senior
secured term loan. Moody's also affirmed SUPERVALU's
B3 Corporate Family Rating and changed the rating outlook to stable from
negative. In addition, Moody's placed the ratings of
American Stores Company ("ASC") senior unsecured notes (all
tranches) on review for upgrade and New Albertson's Inc.'s
("NAI") senior unsecured notes (all tranches) on review with
direction uncertain. NAI is a wholly owned subsidiary of SUPERVALU
and ASC is a wholly owned subsidiary of NAI.
SUPERVALU has reached an agreement to sell all of the stock of NAI to
AB Acquisition LLC, an affiliate of a Cerberus-led investor
consortium. The sale includes its Albertsons, Acme,
Jewel-Osco, Shaw's and Star Market stores and related
Osco and Sav-on in-store pharmacies. As part of the
transaction AB Acquisition LLC will assume approximately $2.0
billion of senior unsecured debt at NAI, about $467 million
of senior unsecured debt at ASC as well as approximately $800 million
of capital leases. Concurrently with the sale, another Cerberus-led
consortium, Symphony Investors, will conduct a tender offer
of up to 30% of SUPERVALU's outstanding shares at a price
of $4.00 a share. The sale is not subject to approval
by SUPERVALU shareholders.
The proposed term loan will be secured by real estate, equipment
and the stock of Moran Foods, LLC (aka Save-A-Lot),
a wholly owned subsidiary of SUPERVALU and will refinance the company's
existing term loan and SUPERVALU's $490 million senior unsecured
notes due 2014. As part of the transaction SUPERVALU intends to
also replace its existing $1.65 billion ABL revolving credit
facility with a $900 million ABL revolving credit facility.
The rating on SUPERVALU's existing senior secured term loan and $490
million senior unsecured notes will be withdrawn upon closing of the transaction.
All ratings are subject to the closing of the proposed transaction and
review of final documentation.
RATINGS RATIONALE
"SUPERVALU's proposed sale of the majority of its retail grocery
business is a positive development as it will improve the business mix
of the remaining company, significantly reduce its exposure to the
highly competitive and challenging traditional retail grocery business
and will lower debt levels," Moody's Senior Analyst
Mickey Chadha stated. "However, the company's
remaining businesses continue to face challenges as evidenced by the continuing
decline in identical store sales for the company's Save-A-Lot
stores and the margin erosion for its independent business which together
will account for about seventy percent of the company's proforma
sales and EBITDA," Chadha further stated.
The B3 Corporate Family Rating reflects SUPERVALU's weak operating performance
vis-à-vis its peers and Moody's expectation that
revenue and profit declines will continue in the near to medium term and
credit metrics will remain weak. The rating also reflects the execution
risk associated with new management's turnaround strategy including
the company's continuing price investment strategy. The weak economic
environment and strong competition from alternative food retailers is
expected to continue to weigh on consumer spending behavior and will continue
to pressure pricing. Ratings are supported by SUPERVALU's
overall size in food retailing and distribution, the relative stability
of the company's independent (primarily wholesale distribution)
business and the potential for improved profitability and growth in the
long term through leveraging fixed costs of the distribution operation
and catering to a growing segment of thrifty consumers through the Save-A-Lot
segment.
The review for upgrade of ASC senior unsecured notes and the review with
direction uncertain of NAI senior unsecured notes will focus on the final
capital structure, projected credit metrics, liquidity and
overall risk profile of AB Acquisition LLC. The review for upgrade
of the ASC notes will also focus on the proposed escrow agreement between
SUPERVALU and ASC under which SUPERVALU's guarantee of the senior
unsecured notes of ASC will be secured with cash in an escrow account
in an amount equal to the total principal outstanding of these notes.
The use of the escrow will be limited to principal payments and open market
purchases of these notes.
The following ratings are affirmed and LGD point estimates updated:
Corporate Family Rating at B3
Probability of Default Rating at B3-PD
SUPERVALU Inc. Senior Unsecured Debt (all tranches) at Caa1 (LGD5,
76%) from (LGD5, 71%)
The following rating is affirmed and will be withdrawn upon closing:
SUPERVALU Inc. $850 million senior secured term loan maturing
2018 at B1 (LGD2, 26%)
SUPERVALU Inc. $490 million senior unsecured notes at Caa1
(LGD5, 71%)
The following rating is assigned:
SUPERVALU Inc. proposed $1.5 billion senior secured
term loan maturing 2019 at B1 (LGD3, 33%)
The following ratings are placed on review with direction uncertain:
New Albertson's Inc. Senior Unsecured Debt (all tranches) at Caa1
The following ratings are placed on review for upgrade:
American Stores Company Senior Unsecured Debt (all tranches) at Caa1
The following ratings are withdrawn:
SUPERVALU Inc. Senior Unsecured Shelf and MTN programs at (P) Caa1
(LGD5, 71%)
New Albertson's Inc. Senior Unsecured Shelf and MTN programs at
(P)Caa1 (LGD5, 71%)
SUPERVALU's stable rating outlook reflects the significant reduction in
its exposure to its underperforming and highly challenging retail grocery
segment. Post-sale SUPERVALU's traditional grocery
retail business is expected to decline to less than 30% of total
sales from about 65%, with the independent (wholesale distribution)
business and the Save-A-Lot segment accounting for about
70% of its pro forma sales and pro forma EBITDA, respectively.
The stable outlook also reflects the less capital intensive nature of
SUPERVALU's remaining businesses, and lower proforma debt
levels, multiemployer pension plan (MEPP) liabilities, and
future MEPP contributions. The outlook also incorporates Moody's
expectation that new management's strategic initiatives will improve
SUPERVALU's profitability and credit metrics in the long term by
leveraging fixed costs of its independent business.
Ratings could be upgraded if the company's strategic initiatives gain
traction and result in a reversal of earnings declines and identical store
sales while maintaining the quality of its store base, and a sustained
strengthening of its liquidity and credit metrics. A ratings upgrade
will also require sustained debt/EBITDA below 5.25 times and sustained
EBITA/interest over 1.75 times.
Ratings could be downgraded if revenues, margins or profitability
continue to erode or operational missteps result in a weakening of the
liquidity or business profile. Ratings could also be downgraded
if there is evidence of further deterioration in SUPERVALU's market position
as demonstrated by sustained decline in identical store sales and margins.
A downgrade could also occur if debt/EBITDA is sustained above 6.0
times or EBITA/interest is sustained below 1.25 times.
SUPERVALU Inc., is headquartered in Eden Prairie, Minnesota
and proforma for the proposed sale of majority of its retail grocery stores
it will have about 1,520 stores, including 1,329 Save-A-Lot
stores of which 946 are licensed to third party-operators.
SUPERVALU also has a food distribution business serving over 1,950
independent grocery stores in addition to its own stores. The company's
proforma annual sales will be approximately $17 billion.
The principal methodology used in rating SUPERVALU Inc. was the
Global Retail Industry Methodology published in June 2011. Other
methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Manoj Chadha
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns B1 rating to SUPERVALU's new term loan; outlook changed to stable
