When British supermarket group Asda announced the financing package backing its £6.8bn purchase by the billionaire Issa brothers and private equity firm TDR Capital from Walmart several aspects of the deal were already attracting attention – not least because it was the UK’s largest leveraged buyout in more than a decade.
“It was certainly one transaction that, when it hit the tape, everyone was scratching their heads,” said Na Wei, managing director of leveraged finance at Barclays. “The City couldn’t understand how the [Issa] brothers could buy a £7bn asset with £800m in equity. It took a while to demystify the transaction.”
Interest was further piqued when Asda decided to predominantly seek bond market financing to back the takeover.
The £2.75bn bonds formed the biggest portion of a complex financing package for the acquisition of the grocery chain that also included two term loans, the use of revolving credit facilities, asset disposals and cash. The bonds and term loans totalled £3.7bn-eqivalent.
“What we did is quite unprecedented,” said Stephen Smith, head of leveraged finance syndicate at Barclays. "The deal was very bespoke, very unusual and a very sizeable amount – and our commitment to it was not just why the financing was a success but how the M&A even happened.”
There was another twist to come: unlike in many other large M&A transactions, leads decided against including euros or US dollars in the funding mix.
Leads had underwritten the transaction in both euros and sterling. In line with the issuer’s preference, however, banks decided to execute the whole deal in sterling, including a £2.25bn senior secured bond – the largest single high-yield tranche ever in any European market.
Following an extensive pre-marketing campaign, leads launched the bond on February 10 into one of the most bullish periods the market would see in 2021.
The transaction was split between £2.25bn of five-year non-call two senior secured notes (rated Ba2/BB by Moody's/Fitch) and £500m of six-year non-call two senior notes (B1/B+). They were priced at 3.25% and 4%, respectively – a sub/senior premium of just 75bp, the tightest differential ever seen for a leveraged buyout new issue. Initial price thoughts were in the 3.5% area and 4.5% area.
Asda received total orders of more than £8.25bn for the transaction, vindicating the gamble to focus solely on the sterling market.
“Our approach on this was leaving no stone unturned, and making sure we hit every possible buyer,” said Smith.
Barclays was joint physical bookrunner on both Asda tranches, alongside Deutsche Bank on the senior secured notes and Morgan Stanley on the senior notes. Joint bookrunners were Bank of America, HSBC, Lloyds and Rabobank.
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