November 7, 2017 / 8:08 PM / 5 months ago

Fitch: Activist Could Accelerate Change at SUPERVALU, but Pay-outs May Be Limited

(The following statement was released by the rating agency) CHICAGO, November 07 (Fitch) According to Fitch Ratings, recent activist demands could further accelerate SUPERVALU Inc.'s (SVU; B/Stable) transformation to a mainly wholesale distribution business and fast track the company's recently announced plans to evaluate its owned real estate, underperforming retail stores, and distribution network. However, cash distributed to shareholders may be limited by restrictions in SVU's $840 million term loan facility, which is secured by a perfected first priority interest in SVU's real estate and other assets that had a book value of $707 million at Sept. 9, 2017. Blackwells Capital LLC, which owns an approximate 3.6% stake in SVU, has proposed that SVU sell 30% of its 217 retail stores, monetize owned real estate, and return cash to shareholders via dividends and share repurchases. The activist has also suggested that SVU make changes to its management team and board structure, which portends a potential push for board representation. SVU owned 51% or 12.8 million square feet of its real estate consisting of which 85% relates to 19 distribution centers and 15% relates to its 217 retail stores as of fiscal 2017 (February). The company does not pay a common dividend and is operating under an interim CFO. SVU's term loan agreement allows for the payment of dividends subject to a fairly liberal restricted payments basket provided that certain conditions are met but contains limitations on the use of proceeds from asset sales including the sale of its retail stores and real estate. Additionally according to covenants, 100% of net cash proceeds from the sale of any term loan priority collateral, inclusive of retail stores and real estate, must be used to prepay the term loans or reinvested within a specified time period if certain conditions are not met. In terms of sale and lease back transactions involving term loan priority collateral, the first $100 million of aggregate net cash proceeds and thereafter 50% of the remainder must be used for debt reduction in order for total secured leverage to be no greater than 2x. Fitch estimates total secured leverage as defined by SVU's credit agreement was less than 1.5x at the quarter ended Sept. 9, 2017. The bond indenture governing SVU's $400 million 6.75% and $350 million 7.75% senior unsecured notes also requires sale and leaseback proceeds be reinvested or used to pay down debt. SVU's 'B' Issuer Default Rating (IDR) and Stable Outlook reflect revenue and margin headwinds facing both its core wholesale distribution and retail business due to heightened competition, consolidation, and restructuring in the U.S. supermarket industry. The ratings incorporate Fitch's expectation of total adjusted debt/EBITDAR in the 4.0x range and positive FCF. However, should a change in financial strategy occur, SVU's ratings would be evaluated. Inclusive of Unified Grocers, Inc. (Unified) and Associated Grocers of Florida (AG of Florida), Fitch estimates SVU's wholesale distribution segment will approximate roughly 75% of its $16.7 billion of pro forma sales, up from under 50% total sales in fiscal 2017. The remaining 25% consist of sales generated by five retail grocery banners: Cub Foods, Farm Fresh, Shop 'n Save, Shoppers Food & Pharmacy and Hornbachers. . Fitch views the closing or divesting retail stores as logical given SVU's wholesale distribution focused strategy and that retail segment EBITDA has declined 45% from $247 million in fiscal 2016 (February) to $135 million for the LTM. However, transactions involving these stores would likely consider depressed industry multiples, pension liabilities, and foregoing revenue or EBITDA SVU earns from distributing to these stores. Fitch estimates SVU's retail segment represents about 25% of the company's approximate $540 million of pro forma EBITDA inclusive of Unified and the pending AG of Florida acquisition which generated an estimated $20 million of EBITDA. Fitch currently rates SVU as follows: SUPERVALU INC. --Long-Term IDR 'B'; --$1 billion secured revolving credit facility 'BB/RR1'; --$840 billion secured term loan 'BB/RR1'; --$750 million senior unsecured notes 'B-/RR5'. The Rating Outlook is Stable. Contact: Primary Analyst Carla Norfleet Taylor, CFA Senior Director +1-312-368-3195 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Monica Aggarwal, CFA Managing Director +1-212-908-0282 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below