SuperValu cuts debt by $240 million, touts impact of loan repricing

By Paul Deckelman

New York, April 23 - SuperValu Inc. reduced its debt and capital lease obligations by $240 million in its 2014 fiscal fourth quarter versus fiscal third-quarter levels, allowing it to also cut interest costs, the company said on Wednesday.

Its chief financial officer told analysts on the Eden Prairie, Minn.-based supermarket operator and wholesale grocery distributor's conference call following the release of the results that "looking back, we made great progress in fiscal '14 on lowering our refinancing risk and significantly reducing our interest expense."

CFO Bruce H. Besanko cited the positive impact of a series of capital market transactions the company undertook over the past year, including repricing both its $1 billion asset-based revolving credit facility and its $1.5 billion senior secured term loan facility.

He said that at the end of the fiscal fourth quarter on Feb. 22, the company's outstanding debt totaled $2.78 billion, versus $3.02 billion at the end of the fiscal third quarter on Nov. 30.

That total debt and lease burden was also down from $2.89 billion at the end of the year-earlier fiscal fourth quarter.

According to the company's most recent 10-Q filing with the Securities and Exchange Commission, after the fiscal third quarter, the capital structure mostly consisted of $1.49 billion of outstanding debt under its 5% secured term loan facility due 2019, $628 million of outstanding 8% senior notes due 2016 and $400 million of 6¾% senior notes due 2021.

The company had $83 million of cash and equivalents on its balance sheet at the end of the latest quarter, versus $72 million in both the third quarter and a year earlier.

Besanko said that "the debt reduction in the fourth quarter [from the third quarter] is very typical as we sell through the higher inventories associated with the holiday season."

He said the cash flow that the company generated in the fiscal fourth quarter "allowed us not only to pay off the existing ABL balance, but we were also able to prepay the term loan amortization payment scheduled for F'15. So I am happy to report that we have zero borrowings on our ABL and available capacity of approximately $785 million at year end."

At the end of the fiscal third quarter, the company had $210 million of outstanding borrowings on the revolver.

Interest costs lowered

Besanko said that SuperValu's net interest expense for the quarter, adjusted for cash refinancing costs and financing cost write-offs, was $50 million, down from $58 million at the end of fiscal 2013. He attributed the overall change to lower average interest rates and lower outstanding balances versus a year earlier on the company's senior notes.

The CFO cited a quartet of transactions that he said had allowed SuperValu to cut its cost of funds.

He noted that last spring, the company completed a tender offer that took out $372 million of the then-outstanding $1 billion of 8% senior notes due 2016, funding the transaction by issuing the $400 million of 6¾% notes due 2021, a pickup of 125 basis points. The modified "Dutch auction"-style tender offer, which wrapped up at the end of last May, was upsized from an originally announced $300 million.

In the bank debt market, he said SuperValu had repriced and amended its term loan, also last May. It cut the interest rate margin down by 100 bps to 4% over Libor and reduced the Libor floor by 25 bps to 1%. The lenders also agreed to let the company increase the size of the term loan by $500 million - up from $250 million previously - subject to a secured leverage test.

Toward the end of the fiscal fourth quarter, in January, SuperValu did another repricing on the same term loan, the CFO said, this time saving another 50 bps as the interest rate dropped to 3.5% over Libor, with the same 1% floor.

He also noted that this second amending and repricing transaction additionally eliminated the springing maturity feature that was previously included in the loan's covenants that would have accelerated its maturity from March 2019 to just 90 days prior to May 1, 2016 if more than $250 million of the 8% notes due 2016 were to be outstanding as of that date.

Besanko said that subsequent to the end of the quarter - it was announced just last week - SuperValu had amended and repriced its revolver, saving 25 bps on the Libor spread, which now falls to 150 bps to 200 bps depending on utilization. The amendment also eliminated a springing maturity feature related to the 8% notes due 2016 similar to the one eliminated from the term loan.

It also extended the revolver's maturity by eleven months to February 2019.

'Very benign debt schedule'

Besanko said SuperValu expects to pay off the roughly $45 million of debt and capital leases that will mature in the current 2015 fiscal year using cash from operations.

During the question-and-answer portion of the conference call following the formal presentations by Besanko and by SuperValu's president and chief executive officer, Sam K. Duncan, the CFO was asked whether an expected capital spending increase would leave the company in a cash-flow negative position. He replied that with only $45 million of current maturities on its debt and leases coming due this year, "we have a very benign debt schedule."

He added that "from a cash-flow perspective," the company's investors will likely "be happy" with the operating plan that management has drafted for the business.

"We're going to execute against this plan, and to the extent that there's cash flow, we're either going to pay down debt or invest in the business, that's the plan."

SuperValu - which radically reinvented itself last year by selling off many of its well-known retail supermarket chains in order to shed $3.3 billion of debt - reported net earnings of $26 million, or 10 cents per diluted share, on sales of $3.95 billion, versus a year-earlier net loss of $1.41 billion, or $6.65 per share, on sales of $3.9 billion.

Earnings from continuing operations came to $40 million, or 15 cents per share, versus year-earlier red ink of $174 million, or 82 cents per share.

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