The AA PLC has set the final yield on its £280 million, five-year (non-call two) offering of secured notes at 6.50%, tighter than revised price talk released yesterday of 6.75% area, and previous guidance of 6.75%-7%. Books closed at 9:30 a.m. London time today. Pricing, though entity AA Bond Co Ltd, will follow via sole physical bookrunner (left, B&D) and joint global coordinator Barclays. Credit Suisse and Goldman Sachs are also joint global coordinators, while Citi, J.P. Morgan and Lloyds are joint bookrunners.
Proceeds from the bond offering, alongside £261 million of equity from a sponsor consortium, will be used to support the full redemption of the company's £541 million of class B2 notes.
Investor feedback highlights that accounts generally like the credit quality, market position of the company and the yield on offer, though there are some concerns around weaker covenant protection than the borrower's last sub-investment-grade bond offering, while EBITDA has softened in recent years. Accounts comment that the business has good free cash flow generation, which is needed even more as the bonds form part of a whole business securitization structure. Moreover, they note the company is the leader in its field, with a large diversified customer base and strong brand name. The firm is also committed to significant deleveraging.
Concerns center on the fact that there are fewer protections within the covenant package. As S&P Global Ratings comments, "the financial default covenant — where the class B free cash flow debt service coverage ratio (FCF DSCR) cannot be less than 100% — will no longer apply once the class B2 notes are redeemed. In our view, this would significantly weaken the borrower security trustee's right to enforce the security package on behalf of the class B3-Dfrd noteholders compared to the class B2 notes."
The company generated £430 million of EBITDA for the year ended Jan. 31, 2015, falling to £343 million in 2020. Free cash flow generation has whipsawed recently, though this is in part due to the firm increasing capex in 2019 to build out its digital offering — though it also saw a decline in net cash flow from operating activities, leading free cash flow down to £4 million. In 2018 and 2020 it was between £85-£90 million.
Net total leverage is 6.8x, according to the preliminary offering memorandum.
S&P Global Ratings on Jan. 18 assigned a preliminary B+ rating to the new bonds.
In November 2020, the company announced it was returning to the private market after it recommended a take-private bid from Warburg Pincus and TowerBrook that valued the group's equity at just £219 million and would bring a partial refinancing of the group's £2.6 billion debt pile.
The deal ends the company's time as a listed company, which dates from a 2014 accelerated IPO when the group was loaded with £3 billion of debt. Charterhouse, CVC and Permira had bought out the company, with travel and insurance group for the over-50s Saga, at the height of the pre-crash buyout boom in 2007.
The AA is famous for its yellow vans and is the U.K.'s leading provider of roadside assistance, attending an average of 9,400 breakdowns daily.
