Albertsons Lines Up $7.6 Billion Debt Financing to Buy Safeway

Cerberus Capital Management LP’s Albertsons chain has obtained $7.6 billion debt financing commitments from banks to finance its $9.2 billion purchase of Safeway Inc., according to a regulatory filing today.

Bank of America Corp., Citigroup Inc. and Credit Suisse Group AG have committed to fund the debt portion of the deal, according to the Safeway filing. Albertsons’s investors and their affiliates will provide $1.25 billion in equity, and that along with Albertsons cash will fund the deal.

The purchase of the second-largest U.S. grocery-store chain may mean Safeway’s credit rating will be cut to junk because of of “significantly higher” leverage, according to a Moody’s Investors Service report last week. The merger of Albertsons with Pleasanton, California-based Safeway, which has about $3.7 billion in debt, would create a company with more than 2,400 stores, according to a March 6 statement from the company.

“Based on our expectation of the level of deterioration in credit metrics as a result of this transaction ratings could be downgraded several notches,” Janice Ann Hofferber, a Moody’s analyst, said in the report.

Safeway is rated Baa3, the lowest level of investment grade by Moody’s, and one step higher at BBB by Standard & Poor’s. Both ratings companies have negative outlooks on the grocer’s debt.