Bonds normally are higher in line than stocks when it comes to repayment. There could be some exceptions to this, depending on the bond structure, but if the bond holders take a haircut, the stockholders generally lose it all first.
The subsidiary of SVU, Albertson's, could technically go bankrupt leaving SVU shareholders with equity. I think it is unlikely to happen but it is a possibility.
More likely, assuming SVU doesn't sell out, a bankruptcy filing in 2016 becomes fairly plausible. In that situation, Albertson's bond holders would likely take very heavy haircuts while the 2016 bonds likely wouldn't as it is the Albertson's entities that are generating the losses (or simply small profits) and have the heavy unfunded pension/benefit liabilities. In that scenario, yea the SVU equity holders get wiped out but the Albertson's bond holders might recover 10 cents on the dollar or something very small while the SVU bond holders come out recovering 90-100%
If I were an Albertson's bond holder I would be happy to get something now or even give something up such as interest coupons to get a new management team in place that actually has a track record of success. Lots of different ways it could turn out but as a practical matter it is the Albertson's bond holders who bear the most risk if risk is measured in dollar terms. They can still lose billions while SVU shareholders only have $600 million at risk.
SupervValu shares rose from the dead yesterday, based on reports that Cerberus Capital Management was lining up bank support of at least $4 billion to acquire the company and to invest $800M to 900M of its own money. Yesterday's Close: SVU: 3.17 +0.98 (+44.75%)
The SuperValue/Albertson's long term bonds barely budged in response to this possible LBO bid. The shorter term 2016 bond started to rise last week after SVU revealed there were several interested buyers. Bloomberg Adding a ton of senior secured debt to an already highly debt ladened balance sheet is certainly not a positive for owners of senior unsecured debt, unless the indenture for that unsecured senior debt has a "change of control" provision requiring the repurchase of that debt generally at 101% of par value and that provision is triggered by the buyout. Change of control provisions will vary. Some may require a debt downgrade by all three agencies from investment grade to junk as a condition to bond owners forcing the debt repurchase, while other indentures may contain no such limitations. The 8% 2016 bond does have a "change of control" provision. Prospectus