Moran Foods LLC – which is owned by PE group Onex Partners – has agreed a recapitalization with its lenders. In what has become a well trod path, the company will be undertaking a debt for equity swap. That’s $400mn of debt moving down the balance sheet. Also commonly done, Moran – which does business as Save-A-Lot Food Stores – will be getting an infusion of capital from their new owners: $138mn.
The extra capital is critical as the discount grocer – which is very highly leveraged according to an earlier Moody’s report we’ve read – is also seeking to change its business model, which will require capital investment. In a nutshell – and for our purposes – Moran seeks to move to a distribution rather than full direct retail model.
The company is yet another casualty of the well known shifts underway in the retail category. In this case, there’s an element of “if you can’t beat ’em, join ’em”, as a trade article illustrates: ”
“As part of the effort, the grocer announced in November the rollout of new services that will enable shoppers to pay for (using Amazon PayCode) and pick up Amazon.com packages in select stores in the St. Louis area.
It will also shoppers offer Amazon Hub Locker as a convenient delivery option to pick up or return Amazon packages at no additional cost. Both Amazon PayCode and Amazon Hub Locker are expected to expand to more than 400 Save A Lot stores by the end of 2020“.
We already had a Corporate Credit Rating of 4 on the company and we’ve added a CCR of 5, as it seems some debt will be turned into equity while other debt may continue as before. Thankfully for the BDC sector the only exposure to Moran is from TPG Specialty (TSLX), which has $39mn invested in an asset-based loan, due in 2021 and valued at par as of September 30, 2019. Chances are very good the BDC will not be negatively impacted by the new state of affairs and may just continue as before. We’ll learn more – presumably – when the next earnings conference call rolls around.