Kroger intends to roll Albertsons junk bonds into new capital structure post-acquisition

By Paul A. Harris and Sara Rosenberg

Portland, Ore., Oct. 14 – Kroger Co. plans to roll the junk bonds of Albertsons Cos. Inc. into the merged capital structure resulting from Kroger's $24.6 billion acquisition of Albertsons, according to an 8-K filed with the Securities and Exchange Commission on Friday.

Albertsons bonds jumped 5 points on the news, a high-yield bond trader said.

The Albertsons Cos., Inc./Safeway Inc./New Albertsons LP/Albertson's LLC 5 7/8% senior guaranteed notes due February 2028 were 96 bid, 96˝ offered, at a spread of 260 basis points, and yielding 6.85% on Friday morning, the trader said.

The 3˝% senior notes due March 2029 changed hands on Friday at 85, at a spread of 240 bps, to yield 6.4%, the source added.

Noting that Kroger has paused its share repurchase program to prioritize deleveraging following the acquisition to achieve a net leverage target of 2.5-times EBITDA in the first 18 to 24 months post close, the trader said Kroger chief financial officer Gary Millerchip told investors, on a conference call, that the Albertsons bonds will rank pari passu with triple-B Kroger debt.

The company has engaged with the rating agencies and is strongly committed to an investment-grade credit rating, according to Friday's SEC filing.

Hence an expectation has taken hold among investors that Albertsons’ bonds will be elevated to investment-grade status, the trader said.

Kroger has received a commitment for a $17.4 billion 364-day senior unsecured bridge loan to support the acquisition, according to the SEC filing.

At closing, the company plans to fund the transaction using a combination of proceeds from new debt financing and cash on hand.

Citigroup Global Markets Inc. and Wells Fargo Securities LLC provided the bridge loan commitment.

Under the agreement, Albertsons is being bought for an estimated total consideration of $34.10 per share, implying a total enterprise value of $24.6 billion, including the assumption of $4.7 billion of Albertsons’ net debt.

In connection with obtaining the requisite regulatory clearance necessary to complete the transaction, Kroger and Albertsons expect to make store divestitures. Albertsons is prepared to establish a newly created stand-alone public company (SpinCo). Kroger and Albertsons have agreed to work together to determine which stores would comprise SpinCo, which is estimated to comprise between 100 and 375 stores, as well as the pro forma capitalization of SpinCo.

Subject to the outcome of a store divestiture process, the cash component of the $34.10 per share consideration may be reduced by the per share value of SpinCo.

Also, Albertsons will pay a special cash dividend of up to $4 billion to its shareholders. The cash component of the $34.10 per share consideration will be reduced by the per share amount of the special cash dividend, which is expected to be about $6.85 per share.

Closing is expected in early 2024.

Kroger is a Cincinnati-based grocery retailer. Albertsons is a Boise, Idaho-based food and drug retailer.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.