SUPERVALU‘s secured and unsecured credit default swaps tightened on the company’s intention to become investment grade, according to a dealer. Its CDS tightened nine basis points last Thursday to trade in the 185-195 context. Its loan-only credit default swaps tightened 15 basis points to trade in the 130-140 range.
Speaking at a Goldman Sachs global retailing conference last week, Jeff Noddle, ceo of SUPERVALU, announced the company is starting to move back toward investment grade, adding management knew it would be giving up investment-grade status when it acquired supermarket operator Albertson’s in June.
Moody’s Investors Service said an upgrade would require the company to strengthen its financial flexibility so that free cash to debt exceeds 10%, earnings before interest and tax covers interest expenses by more than three times, and debt to EBITDA falls toward 4.25 times. Yolanda Scharton, v.p. of investor relations at SUPERVALU, said the company has always intended to be investment grade and wants to return to this status as soon as possible. She said the company was willing to give up that status to buy Albertson’s because it was such a compelling transaction. The company intends to pay down $400 million of debt annually, as of next year.
In April, Moody’s downgraded the ratings on SUPERVALU’s senior unsecured notes to non-investment grade from investment grade. The notes were lowered to Ba3 from Baa3. Then in May, following the acquisition, Moody’s further downgraded the senior unsecured long-term rating to B2 and its corporate credit rating to Ba3 from Ba2. Elaine Francolino, a Moody’s analyst, said the agency has not put the ratings under review for upgrade.