As the BBC reports, Morrisons own a lot of its stores – 87% were freehold at full year. In contrast, competitors like Tesco and Sainsbury’s own a little over 50%. Potential sponsors are likely eyeing the huge asset base - and assessing the extent to which new owners might be able to release some of this value, perhaps funding the equity portion.

Interestingly, the SFA has carve outs for up to £1bn of sale and leasebacks, which can be paid out as dividends providing leverage is no-worse than at opening, or £2bn if leverage is 0.25x inside opening leverage.

With interim financing (shown below) in place, the CD&R commitment documents guide how the future capital structure might look:

The race isn’t over yet

Noted by one twitter user, the pref equity commitment letter for the junior bridge facility actually states £1,200m (rather than the £1,000m in the overall commitment letter). Unless the discrepancy is a typo, that extra £200m of equity suggests a bid of up to 293p could be made. As with Asda and EG Group, CD&R already own Motor Fuel Group, so the combined synergies might mean they see greater value in the supermarket chain than their takeover competitor, Softbank-owned Fortress group.

However, Fortress said yesterday it was ‘Considering its options’ after its August bid of 270p (plus a 2p special dividend) was upstaged. Given this is Softbank-backed, we might well expect to see another counterbid. The market certainly agrees, the latest share price was well above 285p, seen today at around 292p.

Favourable Winds for an all debt acquisition?

Consolidating its position in Greek telecoms, United Group has agreed to acquire Wind Hellas - allowing UG to combine Wind with its existing Greek pay-TV provider, Nova (formerly Forthnet). The combined entity will be the number two player in broadband and television services.

We’ve long been expecting a change in ownership of Wind Hellas, whose existing shareholders (GoldenTree and Cyrus) have owned the business since it was restructured in 2010. As we noted in our Legals QuickTake, covenant baskets for the existing €525m 4.25% SSNs were “set up for what sounds like a pre-planned Portability event or significant corporate reorganisation (asset swap / M&A).”

Despite this flexibility however, Monday’s announcement indicates that UG plans to repay the bonds in connection with the acquisition. So, what will the post-transaction capital structure look like? We think it is likely that United Group will fold Wind Hellas into a combined credit group, as it has done with Vivacom and other targets historically.

We propose a hypothetical capital structure below, with lower and upper bounds on a 6.0x to 8.0x EV multiple for Wind Hellas, the lower end of comparable transactions in our database.

It appears the acquisition could be fully debt funded (although this will depend somewhat on the undisclosed purchase price). On our high level assumptions, the firm could re-lever the group to a ~5x senior secured net leverage (or just above), with the remainder of financing via additional holdco PIK toggle debt.

Subject to regulatory approval, the transaction is expected to complete in 2022.

And Very quickly

Three weeks after marketing £575m SSNs to refinance existing debt, it looks as though The Very Group (TVG) is already lining up to use its novel 102% equity claw. Reported by Sky News, the firm has tapped Barclay, Morgan Stanley and UBS as glo-cos on an IPO ‘likely to take place next year’. Following the speculation, TVG responded, confirming the potential IPO, alongside other strategic options, with ‘no final decision’ made at this time.

As we reported:

This non-standard claw can be used to redeem all or a part of the Notes within the first year after the issue date. The equity claw reverts to the standard 40% par-plus-coupon formulation after the first year until the end of the non-call period.

In other news

• French automotive equipment supplier Faurecia has agreed to acquire a 60% stake in HELLA, a German competitor, with a public tender offer for the remaining shares announced. A committed bridge facility of €5.5bn will be refinanced with bonds and loans, including an €800m bridge to equity which will come out in a rights issue. The combined group will become the seventh largest automotive supplier worldwide.

• The SEC charged former Netflix engineers with trading on insider information.

• Cobham, which was taken private by Advent in 2020, has agreed to buy Ultra Electronics for £2.6bn. However, Business secretary Kwasi Kwarteng has intervened, ordering the competition watchdog to investigate concerns around national security. LPC reports the financing will include a £1,025m (equiv.) TLB and £330m of privately placed subordinated debt.

Leveraged Loans Primary

All quiet on the leveraged front

Buysiders continue to enjoy their summer holidays with another week of calm before the September storm.

“This has been a spectacularly quiet summer. Normally, we’re getting one or two loans come through a week during August, but it’s been a complete graveyard so far,” said one buysider – rather jovially. Another admitted: “I’ve genuinely spent all of August watching Netflix,” joking: “Don’t tell my boss.”

Still, autumn looms near now. Blockbuster deals such as Morrisons (see further up) are creeping towards the market, while other early Q3 contenders including Autoform (see further down). Some buysiders also expect a growth of inflows to leveraged loans, with the anticipation of increasing interest rates in the UK and Europe making floating rate products more appealing.

Keeping our focus in the here and now, one drop of activity this week came from Hexion (B1/B-), which is looking to amend a dual-currency refi. The US speciality chemicals company, which makes resins for transport and automotive end-markets, has kicked amendments into gear on a $710m tranche and €300m tranche facility.

The company first signed its dual-currency facility in June 2019 – then $725m at L+350 bps and€425m at E+400 bps, both with a 99 OID – to refinance debtor-in-possession RC and TL facilities, which emerged from an April 2019 restructuring.

Hexion announced plans for an IPO at the beginning of the month. It posted bumper Q2 results recently, including a 59% increase in net sales to $852m; segment EBITDA from continuing operations came in at $160m versus $56m the year prior. Reported net debt to pro forma EBITDA stood at 3x following the company repaying $150m of its euro-denominated TL in early May, per Hexion’s earnings call.

High Yield Secondary

Trading down again, instruments this week lost an average of -0.12 pts (27% +0.18 pts | 69% -0.24 pts). Utilities (+0.03 pts) was the only Industry making positive gains, while Real Estate (-0.13 pts), Communication Services (-0.18 pts) and Energy (-0.22 pts) saw the greatest falls.

Elsewhere, the iTraxx European crossover widened, up to 239 bps from 230 bps last week.

Leveraged Loans Secondary

Downward movers led the secondary market this week. Top spots were taken up by returners, with Triton-owned Arvos Group continuing its slide, this time -2.13 pts on its €130m E+450 bps TLB to 81.

Arvos, which inked an amend and extend in February 2021, provides industrial equipment and services, primarily to thermal power plants and chemicals companies. Moody’s downgraded Arvos to Caa2 last month.

This week, buysiders also raised long-term sustainability concerns around the business beyond just short-term negative cash flow expectations. “There’s an ESG risk here because so many of their clients are coal plants,” said the third buysider. “Even if you’re not worried about the reputational risk or you don’t have internal ESG targets, who knows what the future of coal plants is in, say, the next two decades?”

Baby, you can buy my car

Overtaking Arvos, Swiss automotive software firm Autoform raced in front of this week’s sliders, reversing -2.75 pts on its€198m E+475 bps 2023 TLB to 95.75 pts.

French PE firm Astorg will be putting Autoform up for sale around September, according to three buysiders. Bloomberg first reported the proposed sale in June this year, giving a valuation between €1bn and €2bn. “I think this is going to be a crowded auction from both competitors and PE,” said a third buysider.

Autoform provides software for engineering and manufacturing processes in the automotive industry, specifically in sheet metal forming and BiW (body-in-white; non-painted car frames) assembly.

“It’s a great business, historically double-digit growth, but it’s a definite niche – it will take some time to get to grips with and there’s the concern of a narrow sector focus,” said a fourth buysider. Tempering that, a fifth buysider points to Autoform’s “nearly 100%” subscription-based revenues.

Comps – as well as potential trade buyers – include France’s Dassault Systèmes and the US firm Autodesk, buysiders say.

For richer, for poorer

Upward movers were muted this week. Pronovias, which topped charts this week, traded up only +0.83 pts to 71.83 pts on its€215m E+450 bps 2024 TLB.

The Spanish wedding dress retailer had a strained 2020 as lockdown measures across Europe called objections on wedding ceremonies for much of the year. According to Pronovias CEO Amandine Ohayon, weddings dropped a “brutal” 60% in 2020, although that only translated to 3% to 5% of orders cancelled for the company, given most couples rescheduled their weddings for the coming years. Now, however, it is enjoying a summer uplift as wedding season co-indices with loosening restrictions, buysiders say.

According to a seventh buysider, only small chunks of Pronovias debt has traded this year after the company won covenant waivers on much of its debt until 2022. “The feeling buysiders have is that BC Partners [the sponsor] is supportive of the business,” the buysider said.

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