The AA has returned to the bond market to further streamline its capital structure with a high-grade sterling bond offering that came alongside an exchange offer.
The company, which is best known for its breakdown recovery service, launched the capped £250m seven-year class A10 notes via AA Bond Co on Wednesday. The bonds have an expected BBB– rating by S&P.
The new issue and the concurrent exchange offer on £550m 4.875% 2024s (A7 notes) and £500m 6.269% 2025s (A2 notes) come as the company aims to extend its maturity profile and eliminate short-term refinancing risk, although one investor sees the exercise as not aggressive enough.
"The exchange offer itself is a good thing but it's a bit frustrating because they are tackling so little through the offer, so they will have to come again [to the market]," said the investor.
The AA is seeking to exchange the two notes for a maximum acceptance nominal amount of £150m, with priority given to the A7s. Proceeds of the proposed July 2029s will be used to refinance the issuer's £250m 2.75% A6 2023s.
Leads Barclays, BNP Paribas, Citigroup and Lloyds opened books at 7.5% area for the new bonds. After pulling in demand of over £500m, the deal launched at 7.375%, following guidance of 7.375%–7.5%. Fair value was 6.75%, according to a lead. The final books were more than £450m.
The A10 notes issued from the exchange offer are set to be combined with the separate new issuance of £250m to form a single series of up to £400m.
The AA first announced debt refinancing plans in November 2020 after its buyout by a private equity consortium comprising funds advised by TowerBrook and private equity funds managed by Warburg Pincus, who promised to slash the company's debt.
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