01/11/2013

Citi, BofA to Lead $1 Billion Supermarket Loan

Citigroup and Bank of America will co-lead a $1 billion loan backed by a portfolio of Albertsons supermarkets that a Cerberus Capital joint venture is acquiring as part of a larger deal with grocery operator Supervalu.

The five-year loan will be securitized in March. It will have both fixed- and floating-rate components, which will give the borrower prepayment flexibility on a portion of the debt. Cerberus plans to select three other lenders to participate in the loan, and sources said Morgan Stanley is among the firms in the running. There probably won’t be a mezzanine component.

The loan will be backed by some 350-390 Albertsons stores. They are among 877 stores, operating under several brands, that the Cerberus team will acquire in a transaction announced yesterday. The deal also includes an offer for stock in the remainder of Supervalu, an Eden Prairie, Minn., company that operates some 2,500 stores under various brands.

The Cerberus team will create an “opco/propco” structure, separating the supermarket operating company from the property-owning entity that will be the borrower on the mortgage. Such structures were popular in the mid-2000s, when debt was cheap and property values were climbing. A similar deal appeared in the commercial MBS market last March, when OSI Restaurant Partners, operator of restaurant chains including Outback Steakhouse and Carrabba’s Italian Grill, placed 331 properties in a separate company and took out a $324.8 million mortgage, which BofA and Deutsche Bank securitized in a standalone deal (BAMLL-DB Trust, 2012-OSI).

Cerberus already controls some Albertsons stores. The chain was split up in 2006, when its parent company and more than 2,000 grocery and drug stores were sold in pieces to a Cerberus-led group, Supervalu and CVS. Cerberus took on more than 650 Albertsons supermarkets, many of them underperforming, and has since repositioned or sold some of them.

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