Dive Brief:

• Discount grocer Save-A-Lot announced Friday it has reached an agreement with lenders to receive $138 million in capital, according to a press release. The company said the money will support its operations and a transformation plan to strengthen the business.
• The infusion of capital will also reduce the grocer’s debt by more than $400 million, which is intended to lower the company’s annual interest expense and strengthen its balance sheet.
• The deal awaits definitive documentation and creditor approval before it's final, but Save-A-Lot expects it to be completed this quarter.

Dive Insight:

Save-A-Lot’s covenant-light loans were expected to start maturing in the 2020s, so its financing and debt loan reduction will give the company a little more breathing room, keeping it from bankruptcy and allowing it to follow through with its transformation plans.

The company has been working on improving the in-store experience. In October, it opened a new sustainable, energy-efficient store featuring wider aisles, lower shelves and brighter lights. It also recently rolled out a new service that will allow shoppers to pay for and pick up Amazon.com packages in some of its St. Louis stores. 

To kick off its transformational efforts in 2017, the retailer hired discount grocery veteran Kenneth McGrath, formerly with Lidl in Ireland, as its CEO. Under McGrath’s leadership, Save-A-Lot closed its underperforming stores and made job cuts. 

Despite these efforts, the company's financials haven't improved. In May last year, the grocer hired investment bank PJ Solomon to explore a potential sale and hinted that if a deal couldn’t be reached, the company would consider reducing its debt.

A few months later, Bloomberg reported the retailer's debt had reached 20 times its adjusted EBITDA. In August, Save-A-Lot's outstanding net debt had increased to about $820 million, while its adjusted EBITDA fell to $35 million from the $70 million from the previous quarter. 

Private-equity company Onex purchased the grocery chain from Supervalu in 2016 for about $1.4 billion. During a conference call in May, Onex CFO Christopher Govan said the chain has underperformed expectations due to stiff competition in the food retail space.

As a result, Moody’s downgraded Moran Foods, the parent company of Save-A-Lot, to Caa3 from Caa1 with a negative outlook.

To compete with growing competition in the discount grocery space from retailers like Lidl, Aldi and Grocery Outlet, Save-A-Lot may have to reduce prices even further, according to Jennifer Bartashus of Bloomberg Intelligence.