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Supervalu high yield bonds drop, CDS gaps out after poor quarterly report

Supervalu shares are down 45% today, at $2.94, while the grocery store operator’s bonds are trading down several points after quarterly results surprised to the downside after the closing bell yesterday. The company’s 8% notes due 2016 are down nine points, pegged at 93/94, and the 7.25% notes due 2014 are trading four points lower, at 97, according to sources and trade data.

Five-year CDS in the name gapped out nearly 40%, to 22/24 points upfront, according to Markit. That essentially a $650,000 higher upfront payment, at $2.3 million, along with the $500,000 annual payment to protect $10 million of Supervalu bonds.

The company reported net sales of $10.6 billion and net earnings of $41 million during the first quarter of fiscal 2013. That compares to net sales of $11.1 billion and net earnings of $74 million during the first quarter of fiscal 2012. Supervalu said the decrease reflected the disposition of a majority of its fuel centers and a decline in identical-store sales.

The S&P Capital IQ consensus mean estimate for net earnings was $76.4 million, so results missed by 46%.

The company is suspending its quarterly dividend and said it will continue to review the dividend policy annually. It plans to reduce capital expenditures in fiscal 2013 to $450-500 million, from $675 million, and to reduce an additional $250 million in administrative and operation expenses over the next two years.

Additionally, Supervalu disclosed that it is planning to replace its senior credit facility with an asset-based facility and term loan. The fully underwritten debt refinancing launches with a bank meeting tomorrow morning at 9:30 a.m. EDT. Joint lead arrangers Credit Suisse and Barclays Capital are leading an $850 million, seven-year covenant-lite term loan as part of that effort, according to sources.

The supermarket chain will also put in place a $1.65 billion, five-year asset-based revolver arranged by Wells Fargo, US Bank, Barclays, and Credit Suisse, sources added.

The term loan is expected to be secured with real estate collateral. It will have a first-lien secured interest at closing equal to a minimum of 1.5 times the value of the loan in appraised value of owned real estate, sources said.

Price talk hasn’t emerged. The term loan will include a 101, one-year soft call premium.

The seven-year term loan includes springing maturities to 90 days prior to the maturity of the company’s 7.5% senior notes due 2014 and its 8% senior notes due 2016 if more than $200 million of either issue remains outstanding at that time, according to sources.

As noted previously, Supervalu has less than $1 billion in debt coming due for fiscal years 2013-2015. The company is looking to reduce debt to $450-500 million in fiscal 2013 and to pay down at least $400 million of debt annually thereafter. Eden Prairie, Minn.-based Supervalu is rated B+/B1. – Staff reports

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  1. [...] Additionally, Supervalu disclosed that it is planning to replace its senior credit facility with an asset-based facility and term loan. The fully underwritten debt refinancing launches with a bank meeting tomorrow morning at 9:30 a.m. EDT. Joint lead arrangers Credit Suisse and Barclays Capital are leading an $850 million, seven-year covenant-lite term loan as part of that effort, according to sources.Source: leveragedloan.com [...]

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