ASDA launches £2.75B 2-part bond offering

ASDA has launched a £2.75 billion, two-part bond offering, with the following tranches and initial price thoughts:

• £2.25 billion of five-year (non-call two) secured notes, with IPTs of 3.5% area.
• £500 million of six-year (non-call two) unsecured notes, with IPTs of 4.5% area.

Barclays is lead left bookrunner on all tranches, and the accompanying term loans. Deutsche Bank, along with Barclays, is a fellow physical bookrunner on the secured bonds, and Morgan Stanley is a fellow joint physical bookrunner on the unsecured bonds. BofA Securities, HSBC, Lloyds and Rabobank are joint bookrunners on all tranches.

A global investor call is scheduled for 4 p.m. London time today, with one-on-one meetings scheduled for Feb. 9, for pricing thereafter.

The bonds have been pre-marketed and are understood to have already garnered strong demand. Meanwhile, the leads last week reverse-flexed pricing on the €840 million term loan backing the company's buyout, while accelerating the process after only two days of syndication due to strong demand. The five-year facility is now talked at E+300 with a 0% floor offered at 99.5, suggesting a yield to maturity of 3.15%.

The transaction was launched with a bank meeting Feb. 3, with price talk set at E+325 offered at 99.5, yielding 3.40%. Commitments on the term loan are now due on Feb. 10, brought forward from Feb. 16 previously.

The secured notes are the largest ever single-tranche issue in the European high-yield market, surpassing the €2.25 billion of secured floating-rate notes from Wind Tre in 2017, and €2.10 billion of fixed-rate notes from Wind in 2014, according to LCD. The secured bonds will also be the largest single-tranche sterling notes offering, with the previous largest being the £1.1 billion issue from Virgin Media in 2013, followed by Stonegate Pubs at £950 million in 2020. It also smashes the record for the largest amount raised in sterling bonds in one go, with Virgin Media in 2013 issuing £1.35 billion across two sterling bonds.

Proceeds from the bonds and loans will be used to finance the £6.8 billion takeover of the U.K. supermarket chain by the Issa brothers and TDR Capital from Walmart.

Ratings have emerged from Moody's and Fitch at Ba2/BB- (corporate), Ba2/BB (secured) with a 2 recovery rating, and B1/B+ (unsecured).

Last week, the buyers said they expect to complete the acquisition of ASDA later this month (subject to approval from the Financial Conduct Authority). The new owners plan to invest more than £1 billion in the group over the next three years to strengthen the business and supply chain.

On completion of the deal, the shareholders plan to sell ASDA's forecourts business to EG Group, the petrol station group also owned by the Issa brothers and TDR, for a headline enterprise value of £750 million, or a multiple of more than 11x EBITDA. The deal is subject to clearance from the Competition and Markets Authority, and on completion the assets (which comprise petrol filling stations, car washes and ancillary land) will be integrated into EG Group's U.K. operations.

In a second transaction announced in early February, the owners said that — on receipt of final regulatory clearance of the ASDA takeover — they plan to sell certain distribution assets to institutional real-estate investors. ASDA will continue to operate the distribution assets, and the deal will have no day-to-day impact on the sites, the supply chain or workforce.

ASDA is a multi-format retailer that sells its products through a network of 584 grocery stores, 18 stand-alone petrol-filling stations and 33 ASDA living stores, as well as online. In addition to grocery and general merchandise, ASDA operates George, a U.K. clothing retailer. It also has a significant property portfolio, of which 75% of the square footage is freehold.