Moody's Assigns B1 Rating to Proposed Supervalu Loan

NEW YORK — Moody's Investors Service here said Monday it has assigned a B1 rating to Minneapolis-based Supervalu's proposed $1.5-billion senior secured term loan. The loan, which will be secured by real estate, equipment and the stock of Save-A-Lot, will be used to refinance the company's existing term loan and its $490-million senior unsecured notes that are due next year. 

Moody's placed the ratings for the senior secured notes of American Stores Co. on review for an upgrade and placed the senior unsecured notes for New Albertsons, Inc., on review with an uncertain direction. Both ASC and NAI are wholly owned subsidiaries of Supervalu.

Moody's also said it was affirming the company's B3 corporate family rating and changed the rating outlook to stable from negative. It said the B3 rating reflects Supervalu's weak operating performance compared with its peers, along with the expectation that revenues and profit declines will continue in the near to medium term and that credit metrics will remain weak. The rating also reflects the execution risk associated with new management's turnaround plans, including its continuing price investment strategy, Moody's noted.

Read more: Cerberus Seen as 'Stopping Point' for Chains

As previously announced, Supervalu has agreed to sell all the stock of NAI to an investor consortium led by Cerberus Capital Management, under which the consortium will assume approximately $2 billion of senior unsecured debt; about $467 million of ASC's senior unsecured debt; and approximately $800 million of capital leases. Concurrent with the sale, a separate Cerberus-led consortium will conduct a tender offer of up to 30% of Supervalu's outstanding shares.

As part of the sale of NAI, Supervalu intends to replace its existing $1.65 billion asset-based lending revolving credit facility with a $900 million ABL revolving credit facility. Moody's said the rating on Supervalu's existing senior secured term loan and $490 million senior unsecured notes will be withdrawn when the deal with Cerberus closes.

According to Moody's, "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 lower debt levels. 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 70% of the company's pro forma sales and EBITDA."

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