Delhaize to Refinance $1.1B Debt

JON SPRINGER

BRUSSELS — Taking advantage of its newly upgraded creditworthiness, Delhaize Group here said last week it plans to raise about $1.1 billion through private debt placements and use the proceeds to retire the same amount in existing debt.

The refinancing plan comes shortly after Delhaize was upgraded to investment-grade status by major rating agencies Moody's Investors Service and Standard & Poor's. The rating changes signaled confidence in the financial and operational improvements at the parent of the Hannaford, Food Lion and Sweetbay banners in the U.S. Delhaize also recently implemented a plan to cross-guarantee its debt obligations between it and its U.S. subsidiary, Delhaize America.

The subsidiary last week offered to buy back up to $1.1 billion in outstanding 8.125% notes due in 2011 at a spread of 50 basis points over U.S. Treasuries. It also offered to buy back $855 million in 9% debentures due in 2031 and $126 million in 8.050% notes due in 2027, each at 170 basis points over Treasuries. Delhaize said the 2011 notes would receive highest priority.

The tender offer will expire June 26 unless extended.

The buyback will be financed by proceeds from the sale of a series of euro-denominated senior notes due in 2014 and U.S. dollar-denominated senior notes due in 2017, Delhaize said.

Chuck Cerankosky, an analyst for FTN Midwest Research, Cleveland, said that obtaining some debt in euros takes advantage of the currency's rising value vs. the U.S. dollar.

“The idea is with one currency going up, you can pay down the depreciated currency with the stronger currency and on a real-terms basis come out ahead,” Cerankosky explained. “It would take fewer euros today to pay off that debt than it would have a year ago.”

Mark Husson, an analyst for HSBC Securities, New York, added that debt in two currencies aligns Delhaize's liabilities to its assets — supermarkets in the U.S. and in Europe.

Husson added that it is likely there will be covenants with the new debt that could preclude Delhaize from making a large acquisition in the near term.

Delhaize had been under a heavy debt load since its $3.6 billion purchase of the Hannaford Bros. chain in 1999, but the company paid much of that down through internal cash in recent years.