* Analyst says deal unlikely due to company debt load
* Shares up 6.6 percent after early jump of 11 percent (Adds analyst comment, background on company operations; updates share move; adds byline)
LOS ANGELES, March 12 (Reuters) - Shares of Supervalu Inc (SVU.N) gained as much as 11 percent in heavy trading Friday as rumors circulated that the second-largest U.S. supermarket operator could be poised for a leveraged buyout.
The shares reached $17.89, their highest level since June, and finished the day up 6.6 percent at $17.13.
Supervalu, which operates stores under the Albertsons and Jewel-Osco names, declined comment, saying it does not comment on rumor or speculation.
Analysts were skeptical about the likelihood of such a deal, noting that buyout rumors lately have run rampant and involved names like GameStop Corp (GME.N), RadioShack Corp RSH.N [ID:nN03256393] and Hologic Inc (HOLX.O) [ID:nN11188941].
"It's another takeover-du-jour story," Jud Pyle, chief investment strategist at Options News Network, a division of option market making firm PEAK6 Investments in Chicago, said in reference to trading in Supervalu.
"The rumor making the rounds is that Supervalu could be the target of a leveraged buyout. Rumor is they could fetch $22.50 a share."
Jefferies & Co supermarket analyst Scott Mushkin called any such deal "unlikely ... it's pretty levered up." Supervalu is carrying long-term debt of nearly $8 billion, many of its stores require investment, and its prices are above those of rivals in many markets, he said. [ID:nN12186506]
"On the face of it, it looks very difficult," said Mushkin. At $22.50 a share, a deal would be at 6.5 to 7 times earnings before interest, taxes, depreciation and amortization, he said. Banks are currently financing LBOs at multiples of 6 to 6.5.
"Taking the whole thing private seems like a stretch," said BMO Capital Markets analyst Karen Short, who said she didn't give much credence to the rumor.
Still, she said "a lot of the supermarkets are LBO candidates because they throw off a lot of cash."
Supervalu's debt load is higher than many of its peers, who also have invested more money into renovating and updating their stores.
The company has $700 million in notes coming due in 2011, but has said it has sufficient cash flows to meet its obligations.
In January, when the company reported its fiscal third-quarter results, executives said year-to-date net cash flows from operating activities were $798 million, compared with $1.1 billion in the year-earlier period.
Year-to-date capital spending was $555 million, compared with $949 million the year earlier.
In the options market, trading in Supervalu was brisk as traders gravitated to March and April call options giving them the right to buy Supervalu shares at $17.50.
Overall volume of about 39,000 contracts was 19 times the recent average daily turnover, and was dominated by the trading of 32,000 calls by midday, according to option analytics firm Trade Alert.
Minneapolis-based Supervalu named Craig Herkert as chief executive officer last May. Under Herkert, who was Wal-Mart Stores Inc's (WMT.N) CEO of the Americas region, Supervalu has sold some stores and announced plans to remodel others and expand its lower-priced Save-A-Lot format. [ID:nN12226038] (Reporting by Lisa Baertlein; additional reporting by Jessica Wohl and Doris Frankel in Chicago, Blaise Robinson in London and Jessica Hall in Philadelphia; Editing by Derek Caney, John Wallace, Gary Hill)