Safeway: Bond deal netted company's lowest 10-year coupon, used to replace maturing debt

By Andrea Heisinger

New York, July 28 - Safeway Corp. considered its $500 million sale of 3.95% 10-year bonds on Monday a success, with high demand and low rates.

"It could not have gone better," said vice president of investor relations Christiane Pelz. "We were very, very pleased."

The notes had the company's "lowest coupon ever on a 10-year bond," she said, adding that low rates were part of the reason for the timing of the deal.

Another reason was an upcoming maturity of $500 million of bonds in August.

"We were looking to replace that," Pelz said.

A small portion of proceeds will also be used to pay down commercial paper. Funds will temporarily be put in an interest-bearing account until the outstanding notes mature on Aug. 16.

The deal was done a little bit earlier than the maturity of those outstanding 4.95% six-year notes.

The company typically waits until it announces earnings to price bonds. It did its announcement of second-quarter numbers on July 22.

The new bonds had a 10-year maturity because it "filled a spot," Pelz said. "We typically try ladder [maturities]."

Safeway's last bond sale was $500 million of 10-year notes on July 31, 2009, at Treasuries plus 158 bps. The new bonds priced at a spread of Treasuries plus 95 bps.

There was strong demand, and the deal was oversubscribed, but Pelz said she was unsure about the amount on the books.

"At a higher coupon there would have been more demand, but we were happy with how it turned out," she said.

The food and drug retailer is based in Pleasanton, Calif.

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