SuperValu is now one step closer to spinning off its Save-A-Lot grocery chain into a stand-alone publicly traded company.
The supermarket has completed an amendment of its existing $1.5 billion secured term loan agreement, permitting SuperValu and its subsidiaries to undertake certain conditions that are necessary to complete the spinoff.
Although Save-A-Lot earned $4.6 billion in net sales in fiscal 2016, making up about 26% of Supervalu’s $17.53 billion in total revenue for the year, unloading the brand would enable SuperValu to narrow its focus onto its Farm Fresh grocer chain and Cub Foods wholesaler chain.
The move would give Save-A-Lot and its more than 1,300 stores the opportunity to function independently as a discount grocer. With more retailers serving health-conscious food offerings, shoppers are more inclined to seek out more affordable supermarkets that can offer these options. Thus, discount, no-frills merchants such as Save-A-Lot and Aldi are exhibiting growth potential within the larger grocery market.
SuperValu initially announced it was exploring a potential Save-A-Lot spinoff in July 2015, with Save-A-Lot filing an IPO with the SEC in January 2016. In December 2015, SuperValu appointed Eric Claus as the new CEO of Save-A-Lot in anticipation of the potential separation.
If Save-A-Lot completes the spin-off, the amendment requires the following conditions:
Save-A-Lot issues a minimum of $400 million of long-term debt;
SuperValu’s term loan balance gets reduced by a minimum of $350 million; and
SuperValu retains a certain minimum equity stake in the spun-off Save-A-Lot company. The supermarket could be required to use net cash proceeds from any future cash-in of that retained equity stake to reduce the $1.5 billion term loan balance.
As part of the expected spinoff, SuperValu indicated in its SEC filing that its shareholders would still own at least 80% of Save-A-Lot upon going public.
Goldman Sachs Bank USA and Barclays acted as joint lead book-runners and joint lead arrangers on the amendment. The maturity date of the term loan is set for March 21, 2019.