Supervalu Bonds Jump After $3.3 Billion Cerberus Transaction

Bonds of Supervalu Inc. (SVU) surged after a Cerberus Capital Management LP-led investor group agreed to buy stores of the grocery chain in a $3.3 billion transaction.

The company’s $1 billion of 8 percent notes due in May 2016, which traded as low as 83 cents on the dollar in July, jumped 2.625 cents to 99.875 and yielded 8.04 percent at 1:22 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Cerberus also will lead a group to conduct a tender offer to buy as much as 30 percent of Supervalu’s common stock for $4 a share in cash, Eden Prairie, Minnesota-based Supervalu said today in a statement. The third-largest U.S. grocery chain has eliminated jobs and accelerated price cuts at stores as it struggles to keep pace with discounters including Wal-Mart Stores Inc. and Target Corp.

Supervalu shares jumped 13.5 percent to $3.45, the highest level since July. Credit swaps protecting against losses on the company’s debt dropped 47.7 basis points to 772.2 basis points at 1:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

That means investors pay $772,200 annually to protect $10 million of debt for five years. Credit swaps, which typically fall as investor confidence improves and rise as it deteriorates, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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