The Fresh Market bonds bought in bulk by loan-to-own PE shopper

28 September,2017 - 04:00 pm UTC

Author(s): by Alexander Gladstone
The volatile selloff in The Fresh Market bonds this week featured several deep-pocketed funds swooping in to establish sizeable positions, noted three sources familiar with the matter. Among the distressed and private equity heavyweights piling into this capital structure is Cerberus Capital Management, which has quickly accumulated a stake in the grocery chain’s first lien notes, two of the sources added.
 
The Apollo-owned supermarket company reported an earnings miss on Monday night, sending the USD 800m 9.75% secured notes due 2023 tumbling. The notes continued to tail off this morning, trading down to 57.625 from yesterday’s close of 63, and down almost fifteen points from a print at 72.25 on Monday, according to MarketAxess. Amidst a rash of high-volume trading, upwards of USD 60m in principal ended up in the hands of private equity buyers, the sources said.
 
For 2Q17, The Fresh Market reported an 8.2% comparable store sales decline compared to pre-earnings estimates of 5%-6%, while adjusted EBITDA for the quarter clocked in USD 29.3m, versus estimates of USD 30m – USD 36m. The results left the company levered at 5.27x, based on USD 771m of LTM adjusted EBITDA and USD 771m of total debt.
 
The market was also taken aback by the company’s disclosure that it recently obtained a USD 50m unsecured revolver from its parent, raising questions as to why it needs the extra liquidity. As of 30 July, TFM had USD 32.9m of cash and USD 74.6m of borrowing availability under its existing USD 100m revolver.
 
For its part, Cerberus has become a dominant player in the grocery industry. The firm acquired Albertsons back in 2006, and then in 2014 bought Safeway and merged it with Albertsons in a USD 9bn deal.
 
Cerberus declined comment and messages left for TFM officials were not returned.