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Supervalu Seeks $2.5 Billion Loan to Refinance, Bonds Drop

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July 12 (Bloomberg) -- Supervalu Inc., the third-largest U.S. grocery that suspended its dividend, is seeking $2.5 billion in loans to refinance debt.

Credit Suisse Group AG, Barclays Plc, Wells Fargo & Co., and US Bank are arranging the financing for the operator of supermarkets and pharmacies, according to a transcript of Supervalu’s earnings call yesterday.

The deal for the Eden Prairie, Minnesota-based company will consist of a seven-year $850 million term loan and a $1.65 billion revolving line of credit maturing in five years, the company said.

The banks will host a lender meeting tomorrow at 9:30 a.m. in New York, according to a person with knowledge of the matter, who asked not to be identified because the information is private. Michael Siemienas, a spokesman for Supervalu, declined to comment on the financing.

Supervalu, whose stock sank 49.2 percent to $2.69 in New York today, saw its $1 billion of 8 percent senior unsecured bonds due in May 2016 dropped 11.25 cents today, to 90.25 cents on the dollar at 3:35 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes are yielding 11.2 percent, the most since they were sold in April 2009.

Credit Swaps

Credit-default swaps tied to Supervalu jumped 6.25 percentage points to 26.5 percent upfront, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

That’s in addition to 5 percent annually, meaning it would cost $2.65 million initially and $500,000 annually to protect $10 million of Supervalu’s debt.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Supervalu plans to accelerate price reductions and cut costs by an additional $250 million over the next two years, it said in a statement yesterday. The company has retained Goldman Sachs Group Inc. and Greenhill & Co. to review its operations.

To contact the reporters on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net; Michael Amato in New York at mamato3@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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