Exclusive: Struggling discount grocer Save-A-Lot to seek buyer or investor - sources

(Reuters) - Save-A-Lot Ltd, the U.S. discount grocer owned by private equity firm Onex Corp, is exploring a sale of all or part of itself, as it grapples with increased competition and a swelling debt load, people familiar with the matter said on Monday.

Save-A-Lot has hired investment bank PJ Solomon to explore a potential deal, said the sources. The move comes as German discounters Lidl and Aldi are putting pressure on Save-A-Lot by expanding across the country, and big box rivals such as Walmart Inc cut prices.

If a deal cannot be inked, Save-A-Lot will also consider options for reducing its debt pile, the people said.

The sources asked not to be identified because the matter is confidential. PJ Solomon declined to comment. Save-A-Lot and Onex did not immediately respond to requests for comment.

St. Ann, Missouri-based Save-A-Lot has about 1,230 stores and is the second largest “hard” discount grocer in the United States after Aldi, according to credit ratings agency Moody’s Investors Service Inc. The so-called hard discount segment covers no-frills grocery stores with limited staffing and product assortment in low-income communities.

Save-A-Lot has a $728 million term loan due in 2023 and a revolving credit line of $250 million, according to Moody’s.

The chain’s profits have faltered in recent quarters as retailers including Walmart, Target Corp and Costco Wholesale Corp, which also have grocery departments, put more items on sale to win customers, according to Moody’s.

Onex bought Save-A-Lot from U.S. supermarket operator Supervalu Inc in a $1.4 billion deal in 2016.

In a sign of investor concern over Save-A-Lot’s ability to honor its debts, its term loan was trading between 50 and 60 cents on the dollar on Friday, according to financial information provider Refinitiv’s Loan Pricing Corp.

In 2017, Save-A-Lot appointed Kenneth McGrath, a former Lidl executive, as chief executive.

Lidl acquired 27 Best Market stores on Long Island late last year.

Reporting by Joshua Franklin, Jessica DiNapoli and Mike Spector in New York; editing by Jonathan Oatis