Iceland Bondco PLC has confirmed price talk on its £250 million offering of 7.25-year (non-call three) secured bonds at 4.5% area (+/- 0.125%). Books close at 10 a.m. U.K. time on Feb. 12 via HSBC (B&D), the sole global coordinator and physical bookrunner on the deal, for pricing thereafter.
The price talk follows initial price thoughts, or IPTs, announced earlier today in a mid-to-high 4% context.
Corporate ratings have been confirmed at B/B2/B, while the new debt is rated B/B2/B+.
Proceeds from the bonds will be used to refinance the borrower's 6.75% notes due 2024 (£170.2 million), repay its term loan facility (£20 million) and put cash on balance sheet (£50 million).
The company also has outstanding sterling 4.625% notes due 2025, which closed on Feb. 9 at 100.75, yielding 4.13%, according to S&P Global Market Intelligence. Those notes mark its last visit to market in 2017, when the company nixed a proposed £200 million, 10-year tranche. Instead, the 2025 notes were increased by £120 million, to £550 million.
Investor feedback at that time showed accounts were generally buying into the firm's turnaround story, commenting that it looked to be entrenched and management had done a good job with the new business model, the company was well-positioned for the years ahead, and that it was growing market share. Concerns centered on this being a U.K. retailer (amid concerns about U.K. consumer spending following the Brexit vote), that the food sector faced strong competition and ongoing price wars, that the firm's bonds had only got back above par at the end of the previous year, and whether investors were being paid for all these concerns.
The company grew sales over the last three years at a CAGR of 3.8%, to £3.25 billion for the financial year 2020. The company has also delivered year-on-year sales growth in 13 out of the last 15 financial years, more than doubling total sales during that period.
For the year through March, adjusted EBITDA grew from £150.2 million in 2015 to £160 million in 2017, before slipping to £157.1 million in 2018, and to £133.7 million in 2020. For the year ended Jan. 1, 2021, the measure has risen to £174.3 million.
Free cash flow (adjusted EBITDA less capex and working capital) fell from £160.6 million in 2015 to £86.7 million in 2016, but rose to £129.9 million in 2017, and then further to £133.7 million in 2018. It then fell to £54.5 million in 2019, but has since risen to £286.9 million for the 12 months ended Jan. 1, 2021. The recent surge in free cash flow is largely due to a change in the firm's working capital.
Total net leverage for the 12 months ended Jan. 1, 2021, was 4x. When the borrower issued in 2017, it was 4.2x, and in 2014 it was 4.3x (all according to the relevant preliminary offering memorandums).
Up to 10% of the new bonds can be redeemed during each 12-month period from the issue date at 103 during the non-call period.
In June 2020, founder and Executive Chairman Malcolm Walker and CEO Tarsem Dhaliwal agreed to take full ownership of the supermarket group in a £115 million deal. In its statement, Iceland said the pair had bought South African investment vehicle Brait's entire 63.1% holding through a newly established company which they own. Brait said the sale valued its stake at £115 million and that it would receive payment in three installments, starting with £60 million, followed by installments of £26.9 million and £28.1 million to be paid on July 30, 2021, and July 29, 2022, respectively. The acquisition leaves Walker and Dhaliwal and their associates in complete control of the group that the former founded in 1970. To support the deal, Iceland has made a £60 million loan to the newco, according to a company spokesperson confirming investor reports.
According to Kantar Worldpanel, Iceland is the second-largest retailer in the U.K. frozen food category, and its market share grew by 1.8%, to 17.2% in the 12 weeks ended Dec. 27, 2020, from 15.4% in the 12 weeks ended July 16, 2017.
