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Roundy's to launch $800M refinancing pre-IPO

by Adam Steinhauer  |  Published January 25, 2012 at 5:01 PM
Roundys-aims-to-go-public227.jpgMidwest chain Roundy's Supermarket Inc. is launching an $800 million loan package this week to repay existing debt in full, and perhaps boost its chances of a successful initial public offering.

The private equity-backed Milwaukee retailer seeks a $675 million seven-year term B loan, as well as a $125 million revolver, according to a source.

The refinancing should go a long way toward strengthening Roundy's balance sheet, which holds $876 million in outstanding debt. (Roundy's first-lien term loan comes due 2013.) Existing debt includes $689.4 million from a first-lien term loan, $147.7 million from a second lien, $37.3 million from capitalized lease obligations and $1.7 million from other debt, according to regulatory filings.

Extending the debt maturities in turn should improve its IPO prospects, the source said. Roundy's, which has been majority owned by Willis Stein & Partners since 2002, filed to go public Dec. 5 with hopes of raising up to $230 million.

Proceeds from the IPO will also be used to pay down debt, the company said in regulatory filings.

Credit Suisse Group and J.P. Morgan Securities LLC are launching the refinancing Thursday, Jan. 26, the source said. The two banks are also underwriting the IPO.

While it may be successful in refinancing existing debt, however, an IPO may be more problematic amid continuing market volatility and uncertainties surrounding economic recovery. Since the European sovereign debt crisis, few private equity-backed companies have successfully gone public; most recent listings were by technology businesses, such as Zynga Inc. and Jive Software Inc., or energy companies.

In the 180-day IPO pipeline, there are 54 private equity-backed companies that have filed to bring in $5.4 billion total, according to data from Dealogic.

Among the few that pulled off IPOs in recent months was Houston bedding retailer Mattress Firm Holding Corp., backed by J.W. Childs Associates LP, which did not sell shares in the IPO. Mattress Firm's debut in November priced at the top of the range to raise $105 million.

But most companies have been sidelined by forbidding market conditions -- or canceled the offerings outright.

Artisan Partners Asset Management Inc., a Milwaukee asset manager owned by Hellman & Friedman LLC, gave up on IPO plans in late December, citing unfavorable market conditions.

Neil Dhar, partner and IPO services leader at PricewaterhouseCoopers LLP, said PE-backed companies have accounted for the majority of the overall IPO pipeline over the past two years, including 90 of the 130 in 2011.

Though market volatility still exists, which makes the demand for IPOs "jittery," Dhar believes IPOs are possible in 2012 for companies that can showcase strong growth, quality management and a positive track record.

He said it makes sense for a company to try to make itself more attractive by refinancing, especially considering the historically low cost of debt.

"I think financial sponsor-backed IPOs will continue to lead the way around exits," Dhar said. "My practice is really busy. A lot of companies are thinking through this."

Roundy's has yet to set a price range for an IPO.

What's clear is that whatever Willis Stein sells in the IPO will round out the already significant gains -- around $590 million -- that the Chicago firm has raked in through dividends since it acquired ownership for $805 million. To date, the firm has recouped 1.9 times its original equity investment.

Willis Stein has twice attempted to auction Roundy's, once in spring 2011 and in 2007, though both efforts failed.

The company has had relatively flat Ebitda growth since 2009. Ebitda went from $239 million in 2009 to $223.4 million as of Oct. 1, 2011. It has added stores, from 39 stores in the greater Milwaukee area to 60, and beefed up market share from 40% to 60%, the company said.

But that market share could soon be challenged by megastores such as Wal-Mart Stores Inc. and Target Corp., which continue to expand their grocery offerings, said analyst David J. Livingston of DJL Research.

Milwaukee-area customers traditionally shop based on price, Livingston said, and Roundy's has historically been a low-priced supermarket. But as big-box retailers and other high-volume, low-price stores, such as Woodman Food Market, gain more traction, more traditional stores such as Roundy's are losing ground, he added.

"All of a sudden, you're not the lowest-priced store on the block anymore," he said. "You've just got a lot of competitive businesses around."
Tags: IPOs | Roundy's Supermarket Inc. | supermarkets | Willis Stein & Partners

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