Supervalu slides on earnings warning; Rite Aid gains with quarterly results; LCDX rises

By Sara Rosenberg

New York, June 24 - Supervalu Inc.'s term loan B headed lower during Wednesday's trading session after the company announced that its first-quarter earnings would be lower than estimates as a result of cautious spending by customers.

Also in trading, Rite Aid Corp.'s old and new term loans were both better on the day as the company came out with better-than-expected earnings and the LCDX 12 index was stronger although stocks ended the day mixed.

In other news, Quebecor World Inc. closed the books on its revolving credit facility, with the tranche ending up overfilling at initial terms.

Supervalu trades down

Supervalu's term loan B weakened in trading as the company warned that its first-quarter earnings will be substantially below First Call consensus, according to a trader.

The term loan B was quoted at 93¾ bid, 94¼ offered, down from 94 3/8 bid, 94 7/8 offered, the trader said.

The company explained that first-quarter net earnings and identical store sales are being affected by tougher than expected business environment, investments in price and higher levels of promotional spending.

"Since providing guidance on our fourth-quarter earnings call, consumers have become more value focused and cautious in their spending which has pressured sales and margins greater than anticipated. We currently estimate our identical store sales will be about negative 3%. We will update annual guidance on July 28 with our first-quarter earnings release," said Craig Herkert, chief executive officer, in a news release.

Supervalu is an Eden Prairie, Minn.-based supermarket operator.

Rite Aid better on earnings

Rite Aid's old and new term loans moved higher after the company revealed fiscal first-quarter results that showed a smaller net loss and a slight gain in EBITDA on a year-over-year basis, according to a trader.

The old term loan was quoted at 79 bid, 80 offered, up from 77½ bid, 78½ offered and the new term loan was quoted at 99½ bid, par offered, up from 99 bid, 99½ offered, the trader remarked.

For the fiscal first quarter ended May 30, Rite Aid reported a net loss of $98.4 million, or 0$.11 per diluted share, compared to a net loss of $156.6 million, or $0.20 per diluted share, last year.

Revenues for the quarter were $6.5 billion, compared to $6.6 billion in the prior year first quarter.

Adjusted EBITDA for the quarter was $249.2 million, or 3.8% of revenues, compared to $241.1 million or 3.7% of revenues, in the 2009 fiscal first quarter.

"We are pleased with our first-quarter results as we continued to build on the improvements we made in the last several quarters. We grew pharmacy sales, improved adjusted EBITDA by operating more efficiently and continued to take costs out of the business while at the same time our customer satisfaction ratings improved," said Mary Sammons, chairman and chief executive officer, in a news release.

Rite Aid improves cash position

Also on Wednesday, the company revealed that it generated positive cash flow from operations in the fiscal first quarter of $357.6 million, compared to a net use of cash of $105.3 million in last year's first quarter.

Net cash from operations, including inventory reduction, and reduced capital expenditures contributed to availability of $901.8 million under the company's revolving credit facility at quarter end.

"We are in a much stronger financial position today with the significant improvement in cash flow and liquidity we achieved in the first quarter and the progress we have made refinancing a major portion of our September 2010 debt maturities," Sammons said in the release.

"The increase in liquidity gives us ample funds to execute our business plan and the extended maturities give us more time for our initiatives to continue to improve our performance. We are not just changing our business to weather the current economic storm. We are changing the way we operate for the long term," Sammons added.

Rite Aid updates estimates

As a result of the refinancing, Rite Aid updated its fiscal 2010 net loss guidance to include increased interest expense of $55 million.

Under the refinancing, the company replaced its $145 million term loan tranche 1 and partially replaced its $1.75 billion revolver with new facilities that include a $525 million term loan due June 2015 and $410 million of 9.75% senior secured notes due June 2016. Additionally, the company received commitments for $960 million of its proposed new $1 billion revolver due September 2012, which will be used to refinance the remainder of its existing revolver.

With the change in interest expense, the company now expects net loss for fiscal 2010 to be between $265 million and $490 million or a loss per diluted share of $0.33 to $0.59.

Meanwhile, guidance for fiscal 2010 sales, adjusted EBITDA and capital expenditures was reaffirmed.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

LCDX trades better

The LCDX 12 index gained some ground on Wednesday despite stocks being mixed on the day, according to a trader.

The index was quoted at 85.55 bid, 85.85 offered, up from 84.30 bid, 84.60 offered, the trader said.

As for stocks, Nasdaq closed up 27.42 points, or 1.55%, Dow Jones Industrial Average closed down 23.05 points, or 0.28%, S&P 500 closed up 5.84 points, or 0.65%, and NYSE closed up 36.23 points, or 0.63%.

Quebecor wraps revolver

Switching to the primary market, Quebecor completed syndication of its $350 million three-year exit financing revolving credit facility (B1) and the tranche was "pretty well oversubscribed" at original terms, according to a market source.

The books on the loan closed on Tuesday and allocations are hoped to go out next week, the source said.

Originally, the commitment deadline had been set for June 12. However, being that banks tend to do a fair amount of extensive underwriting, the deadline had been extended.

Pricing on the revolver is Libor plus 450 basis points with a 3% Libor floor, and an unused fee that can range from 75 bps to 100 bps.

Investors were two points up front on allocations of up to $50 million, and 2.5 points for allocations above $50 million.

Quebecor also getting term loan

In addition to the revolver, Quebecor is getting a $450 million three-year term loan (B1) as part of its $800 million exit facility.

Pricing on the term loan is Libor plus 600 bps with a 3% Libor floor, and it was sold to investors at an original issue discount of 90.

On June 12, the term loan had been upsized from $325 million and the original issue discount had been tightened from initial talk of 88 due to the tranche being massively oversubscribed by investors.

The term loan carries 101 call protection for two years and during those two years, there's also 101 call protection against a change of control.

Credit Suisse, GE Capital Markets and Wachovia are the lead arrangers on the exit facility, with Credit Suisse the left lead on the term loan and GE the left lead on the revolver.

The facility is expected to be finalized by mid-July.

Quebecor new capital structure

Quebecor's new capital structure contemplated under its plan of reorganization includes preferred stock, new unsecured notes, new common shares and new warrant bundles.

In connection with the term loan upsizing, Quebecor will be lowering the amount of convertible preferred shares it was planning to issue to $100 million from $200 million.

Remaining proceeds from the term loan upsizing will be used to enhance liquidity.

The new capital structure will be exchanged for the $2.7 billion of liabilities subject to compromise and for repayment of the company's debtor-in-possession financing facility.

Quebecor is a Montreal-based printing and marketing company.

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