U.K. Pub Company Sells Biggest Sterling Junk Bond Since 2013
2020-07-24 12:32:42.893 GMT
By Irene García Pérez and Manas Pratap Singh
(Bloomberg) — British pub company Stonegate Pub Co issued
the biggest sterling-denominated junk bond since 2013 on Friday
to help finance the takeover of one of its rivals.
The TDR Capital-owned company, which runs familiar high-
street chains including Walkabout and Slug & Lettuce, sold 950
million pounds ($1.19 billion) of fixed-rate bonds this week,
the biggest since Virgin Media issued 1.1 billion pounds of
senior secured notes in 2013, according to Bloomberg data.
Stonegate’s sterling notes were priced at 8.25% on Friday
The latest offering adds to a list of M&A-linked deals that
had been put on hold earlier this year and are tapping the
market now that conditions have improved. That has helped the
high-yield bond market to recover strongly following a six-week
lull that lasted until mid-April. June alone recorded 12.8
billion euros in issuance, the busiest month since November.
Stonegate’s bond is part of a bigger debt sale to replace
the 1.8 billion pounds worth of debt underwritten by a group of
banks, led by Barclays Plc, Goldman Sachs Group Inc. and Nomura
Holdings Inc., nearly a year ago when the pub group agreed to
buy EI Group. The financing was upsized to 1.9 billion pounds in
Read more: U.K.’s Wary Pub Goers Overshadow Stonegate’s
Debt Market Return
Earlier indications guided the sterling notes to yield in
the 8-8.25% range, a “tight” price talk that does not
“adequately compensate investors for the execution and financial
risks of the combination, considering the post COVID-19 market
situation and complexity of the structure,” Lucror Analytics
wrote in a note on Friday.
“While we believe that the path to recovery following the
pandemic will be challenging for Stonegate, the group appears to
have flexibility in adjusting its cost base and capital
investments,” they added.
One of the main challenges Stonegate’s highly leveraged
business will face in the coming months is how to lure people
back to pubs, but liquidity seems fine, at least for now, said
Nicholas Campello and Mateo Salcedo, analysts at Spread Research
in a phone interview.
While the terms of the deal are tighter than other recent
transactions in the sub-investment space, there are still some
areas of concern for investors, CreditSights analysts wrote in a
note on Thursday.
Among these, CreditSights analysts highlight that the
assets guaranteeing the new debt exclude those from a subsidiary
that represents almost 40% of the group’s holdings and 30% of
the combined earnings.
A representative for TDR declined to comment.