For Roundy’s, Amend & Extend Means Dividend

Willis Stein & Partners’ investment in Roundy’s, a Midwestern supermarket chain, is about to return more money to its investors. The Chicago-based buyout firm is in the midst of negotiations to amend the terms of the company’s debt, extending the maturity on its revolver and term loan from 2010 to 2012, a source familiar with the situation said.

It’s a move that’s become increasingly common among private equity portfolio companies as they realize their capital structures, created in an era of cheap capital, are not sustainable. But in the case of Roundy’s, which Willis Stein purchased in 2004, the amendment is not a result of capital constraints. Roundy’s has excess capital on its balance sheet, which Willis Stein will absorb in the form of a dividend recap, the source said. The exact size of the recap is still in negotiations, but thanks to the excess cash, Roundy’s debt load will not change as a result of the recap.

This would not be Willis Stein’s first dividend on Roundy’s — having earned 120% of its $225 million investment via a 2006 dividend recap.

The debt extension does not necessarily suggest that Willis Stein won’t try to exit the investment in 2010, the source said. Roundy’s shopped itself once under Willis Stein’s ownership in 2007, seeking $2 billion. Willis Stein pulled the company from the auction block as the credit crisis crept into the lending market, leading to lower bids from private equity suitors.

Roundy’s is in a unique position as being one of Willis Stein’s best-performing investments with an uncertain exit strategy. The company isn’t a good candidate for an IPO because grocery stores are not highly valued on the stock market, the source said. Willis Stein is relying on renewed private equity interest, or for strategic buyers to be seeking expansion in Roundy’s region, which includes Wisconsin and Minnesota.

The company operates more than 150 supermarkets under the Pick’n Save, Copps, MetroMarket, and Rainbow brands. Roundy’s has more than $4 billion in annual revenue.

The recaps return money to Willis Stein’s third fund, a $1.8 billion pool raised in 2001. And it’s needed, because the fund took a $345 million loss on Ziff Davis, when the publisher filed for bankruptcy protection in March 2008 (Willis Stein had also invested $100 million from its second fund).

For two years now, LPs have anticipated the firm’s attempt to raise Willis Stein IV LP, but the firm remains on the sidelines. In 2007, managing partner Dan Blumenthal left to form his own firm, called Blue River Partners, with principals Bradley Shisler, Roy Jain and CFO Todd Smith. The firms investor relations director, Phil Poole, remains at Willis Stein as Of Counsel. (This post previously reported that Phil Poole in April left the firm to launch his own placement agency, named Navidar Capital.)

Previously: Willis Stein: Pushing Forward Back

*Former Willis Stein and Bear Pros Launch Placement Agency

*Willis Stein Returns To Market