(Bloomberg) -- Banks involved in the buyout of U.K. grocer Wm Morrison Supermarkets Plc have privately sold the riskiest class of debt, paving the way for the rest of the landmark deal to hit public markets.
Lenders including Goldman Sachs Group Inc., BNP Paribas SA, Bank of America Corp. and Mizuho sold 1.2 billion pounds ($1.6 billion) in junior secured notes to credit funds, according to people familiar with the matter who were not authorized to speak publicly.
Financing the Morrison takeover, the largest leveraged buyout of a British company in more than a decade, represents a watershed moment for credit markets, with the rest of the 6.6 billion-pound debt package being closely watched by traders. It will lay down markers for other potential transactions targeting famous British companies, such as Boots drugstore chain and Marks & Spencer Group Plc.
However, the fact that Morrison's banks chose to bypass public markets is a sign that the risk tolerance among investors is diminished and that sentiment toward big deals might be souring.
In a private transaction, the seller usually has to sacrifice on getting the best price, but they are shielded from the volatility that can come with deals on the open market.
The arranging banks are planning to begin pre-marketing talks with select investors in the next week and launch the sale to the wider market by the end of February, the people said. They also plan to denominate more of the senior debt in euros, instead of sterling to make the sale more appealing, they added.
Representatives for the lead banks declined to comment. Morrison's acquirer, the private equity firm Clayton, Dubilier & Rice, also declined to comment.
Pulling off the takeover hasn't been a smooth process so far. The debt sale was postponed late last year when investors were grappling with fears over rising interest rates and surging Covid cases.
The volatility whipping across global stock markets and hawkish stance of Federal Reserve Chair Jerome Powell has also caused a number of debt sales to struggle as of late. Last month, the cost of insuring junk bonds spiked to its highest since November 2020.
Morrison Postpones $8.5 Billion Deal Amid Market Volatility
Some investors took comfort in the sale, interpreting it as a sign that Morrison's jumbo debt financing could be more easily digested by the market. Asda's 3.25% bonds due in 2026 climbed to 94.5 cents on the pound, compared with 92.7 cents on the pound on Monday.
Morrison Deal Details
- Lenders have now privately placed 500 million pounds of junior secured notes and 700 million pounds of euro-denominated junior secured notes.
- That leaves just the senior part of the capital structure to sell to institutional investors via a syndication process.
- The deal is set to be around 3.4x leveraged through the senior portion and 4.4x in total and includes:
- 1.5 billion euro-denominated TLB, 500 million-pound TLB
- 2.4 billion pounds of senior secured notes
- 500 million pounds of junior secured notes
- 700 million pounds of euro-denominated junior secured notes
- 1 billion pound revolving credit facility
- Goldman Sachs, BNP Paribas, Bank of America and Mizuho provided initial underwriting and were joined by a further eight banks in September including Santander, Rabobank, Deutsche Bank, Intesa Sanpaolo, MUFG, NatWest, Societe Generale and SMBC. HSBC, ING, Lloyds and RBC joined the line up in December
©2022 Bloomberg L.P.
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