The Stop & Shop Cos. will trim junk debt. including some 13 1/4% notes, with proceeds from the spinoff of its Bradlees Discount Department Stores business, the Boston-based supermarket chain said yesterday.
The asset sale, which netted proceeds of $392 million, clears the way for Stop & Shop to refinance $175 million face value of 13 1/4% subordinated notes, according to Sheila O'Connell, an assistant vice president at Duff & Phelps/MCM Investment Research Co.
The company could not have refinanced the issue with lower cost debt before July 15, 1993, because the original indenture agreement prohibits it, she said.
Following a 45-day notification period, Stop & Shop will redeem the notes at 106.625% of their par value, Joseph McGlinchey, Stop & Shop's chief financial officer, said yesterday. Mr. McGlinchey said the supermarket chain will notify holders "shortly."
Stop & Shop will also redeem the remainder of two other high-yield debt issues, one carrying a 13 1/8% coupon, the other carrying a 12 1/2% one. A total of about $100 million of those issues remains outstanding, Mr. McGlinchey said. The company will redeem both at 101 on July 15. he said.
Through Stop & Shop will use proceeds from Bradlees sale to redeem those issues, they were unfettered by the refinancing restriction covering the 13 1/4% notes, Mr. McGlinchey said.
Stop & Shop sold Bradlees to a subsidiary of a newly created public company called Bradlees Inc., a Stop & Shop press release said.
Mr. McGlinchey said Bradlees, part of Stop & Shop since 1961, had grown through remodeling stores. With Bradlees now ready to grow through new stores, Stop & Shop decided the discount department store's business and its own investment would be best served if Bradlees could tap the public markets itself, he said.
The $392 million proceeds figure consists of $135 million of equity, $106 million from a bank term loan, and a $100 million senior note issue payable to Stop & Shop Cos., the release said. It also includes $51 million of capitalized lease obligations that Bradlees assumed.
In addition to debt redemption, Stop & Shop will also use proceeds to purchase 1 million shares of Bradlees Inc.
Bradlees Inc. yesterday announced its initial public offering of 11.02 million shares at $13 a share, the equity portion of the proceeds.
Underwriters were Merrill Lynch & Co., First Boston Corp.; Goldman, Sachs & Co.; and Lehman Brothers. The new company expects to complete the stock offering and the Bradlees purchase by July 9, a Bradlees release said. Bradlees stock will trade on the New York Stock Exchange.
In other news, CBS Inc. yesterday announced plans to redeem its 10 7/8% senior notes on Aug. 1. The notes, scheduled to mature on Aug. 1, 1995, will be redeemed at par. Accrued interest to the redemption date will be paid as usual, a CBS release said. The Chase Manhattan Bank is acting as trustee for the notes.
In secondary trading, high-grade bond prices moved up, with Treasuries gaining about 1/4 point in the long end. High-yield bonds gained about 1/8 point.
Waste Management issued $250 million of 6.375% notes due 1997. The noncallable notes were priced at 98.85 to yield 6.65% or 38 basis points over comparable Treasuries. Moody's Investors Service rates the offering Al, while Standard & Poor's Corp. rates it AA. Merrill Lynch & Co. lead managed the offering.
Pepsico issued $200 million of 5.625% notes due 1995. The noncallable notes were priced at 99.875 to yield 5.671% or 32 basis points over comparable Treasuries. Moody's rates the offering Al, while Standard & Poor's rates it A. Goldman Sachs sole managed the offering.
Banca Commerciale Italiana issued $200 million of 8.25% subordinated notes due 2007. The noncallable notes were priced at 99.914 to yield 8.26% or 116 basis points over 10-year Treasuries. Moody's rates the offering Al, while Standard & Poor's rates it A-plus. Lehman Brothers lead managed the offering.
Rexnord Corp. issued $172.5 million of 10.75% senior notes due 2002 at par. Noncallable for five years, the bonds were rated Ba3 by Moody's and B-plus by Standard & Poor's. Citicorp Securities Markets Inc. lead managed the offering, which was increased from $150 million.
Willamette Industries issued $100 million of 7.75% notes due 2002. The noncallable notes were priced at 99.819 to yield 7.776% or 67 basis points over comparable Treasuries. Moody's rates the offering A3, while Standard & Poor's rates it A. Salomon Brothers lead managed the offering.
Standard & Poor's has upgraded Burlington Holdings Inc.'s subordinated debt to B-plus from CCC-plus and removed it from CreditWatch, where it placed it with positive implications on Jan. 21. About $68 million of rated debt is outstanding.
Also, Standard & Poor's withdrew its ratings on Burlington Holdings' senior unsecured debt and parent Burlington Industries Capital Inc.'s senior unsecured debt because those issues have been retired.
"The upgrade reflects the improved financial profile of the consolidated Burlington Industries Equity Inc. entity, the ultimate parent of the two issuers, following an initial public offering and direct placement of common stock in mid-March," a Standard & Poor's release said.