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Buyout firm specializing in distressed companies invests $1.75 billion in Albertsons

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BOISE (Idaho Statesman) — A private-equity firm said Wednesday that it has invested $1.75 billion in Albertsons Cos.

The investment by Apollo Global Management gives the New York City buyout company and other investors a 17.5% stake in the company through convertible preferred shares.

“Apollo Funds represents a vote of confidence in both our business and our long-term strategy,” Albertsons CEO Vivek Sankaran said in a press release.

“This investment marks the third sizable transaction in the last month and exemplifies the breadth of Apollo’s capabilities and the creative capital solutions we can deliver to great companies,” Apollo partner Justin Korval said in the same release.

Amid the coronavirus pandemic, Apollo has shifted the focus of its $25 billion private-equity fund “almost entirely” on gaining control of companies by investing in their debt, CEO Leon Black said during a May 1 quarterly earnings call.

“Our expectation is that over the next two years there are going to be a lot more distressed opportunities,” Black said.

Black did not mention Albertsons in his remarks, but Apollo’s investment in the Boise grocery chain, the nation’s second-largest behind Kroger, came less than three weeks after the earnings call.

Albertsons, controlled by New York private equity firm Cerberus Capital Management and several real estate investment partners, has long been saddled with a massive amount of debt, including $8.9 billion from the 2015 purchase of Safeway.

Two years ago, it owed $12 billion. That was trimmed to $8.2 billion at the end of February, according to Albertsons’ latest earnings report. At the same time, it has nearly $5 million in unpaid liabilities to its union pension plans.

In March, Albertsons announced plans to take the company public and begin offering stock to the public before the end of the year. The IPO offering would pave the way for Albertsons to end the 14 years of ownership by Cerberus.

The pandemic has provided grocery stores a significant boost in business. Albertsons said same-store sales increased 34% during the first eight weeks of its 2020 fiscal year, ending April 25, compared with the same period a year ago. During the four weeks ending March 28, sales jumped 47%.

Apollo’s move with Albertsons was just one of several it has made this year. It recently obtained a sizable position in insurance contracts, called credit default swaps, on corporate debt from car rental agency Hertz Global Holdings, The Wall Street Journal reported. Apollo is betting that Hertz, which has $17.1 billion in corporate debt and vehicle-backed debt, will default on that debt, the newspaper reported.

During the pandemic, Hertz has seen its financing costs rise as there has been a rapid decline in used-vehicle prices. It recently missed a lease payment to its subsidiaries, which own Hertz’s 770,000 rental vehicle fleet. The Journal reported that the company’s creditors have agreed not to declare the company in default until Friday, while they continue restructuring talks.

An investment group led by Apollo has bought debt of airport baggage handling company Swissport. The company has seen its revenues drop by about 80% during the pandemic, Reuters reported, as air travel has been greatly reduced.

Apollo also has investments in Qdoba Mexican restaurants, Chuck E. Cheese, engineering firm ch2m Hill, McGraw-Hill Education and security firm ADT, among others.

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