Spartan Stores swaps $40.3 million convertibles for new 6.625% notes

By Toni Weeks

San Diego, Dec. 6 - Spartan Stores, Inc. said it exchanged $50 million of newly issued 6.625% senior notes due Dec. 15, 2016 for $40.3 million of the company's existing convertible senior notes due 2027 and $9.7 million in cash. Cowen and Co., LLC was the placement agent for the exchange and sale.

According to an 8-K filing with the Securities and Exchange Commission, the new notes and related guarantees were offered in a private transaction exempt from registration requirements of the Securities Act of 1933.

All of the obligations of the company under the indenture for the new notes are guaranteed by each subsidiary.

The company plans to call the remaining outstanding $57.4 million of convertibles before March 30, 2013, the end of the current fiscal year, according to a press release. The redemption of the convertibles will be funded with the proceeds of the private exchange, available cash and borrowings under the company's revolving credit facility.

The convertibles are putable beginning May 15, 2014, if not redeemed earlier.

"This exchange was an opportunity for us to issue new long-term debt at a relatively attractive rate for the company, retire higher-cost debt and reduce our overall interest expense going forward," executive vice president and chief financial officer Dave Staples said in the release.

"We believe this exchange and the planned redemption of our outstanding convertible notes in conjunction with our cash, cash flow from operating activities and credit facilities will continue to support our continuing capital requirements in the coming year."

Spartan expects to save about $3 million in annual interest expense as a result of the transactions, the release noted.

The 6.625% notes are callable before Dec. 15, 2014 at par plus an applicable premium, which is intended to provide holders with roughly the rate of return they would have received had they held the notes until that date. After that, the redemption price will be 103.3125 for notes redeemed beginning Dec. 15, 2014 through year-end 2014 and 101.65625 for notes redeemed in 2015 or after.

In addition, the company may redeem up to 35% of the new notes before Dec. 15, 2014 at par plus the coupon with the net cash proceeds of equity offerings, but only if at least 65% of the original principal amount of the notes would remain outstanding following the redemption.

The indenture provides for customary events of default and contains affirmative and negative covenants that, among other things, limit the ability to incur more debt, prepay subordinated debt, pay dividends or distributions on capital stock and redeem or repurchase capital stock.

Pre-tax charges of about $2.3 million related to the private exchange will be recorded in the third quarter of fiscal 2013, and about $2.8 million of charges are expected to be recorded in the fourth quarter of fiscal 2013 concurrent with the planned redemption of the remaining convertible notes.

Bank of New York Mellon Trust Co., NA is the trustee for the 6.625% notes.

Grand Rapids, Mich.-based Spartan is a grocery distributor and retailer.

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