Asda kicks debt worries into the next decade after £3.2bn deal

Asda has pushed its debt worries into the next decade after it refinanced more than £3.2bn of its debt.

The supermarket giant said the deal has pushed the majority of its maturities past 2030 and included the biggest sterling high-yield bond this year.

Asda added that it was also the second-largest sterling bond in the European leveraged finance market – only behind its original £2.25bn sterling bond tranche in 2021.

In a statement, the supermarket chain hailed “strong investor demand” to help it raise £1.75bn of senior secured notes and upsize by more than £200m on a £900m Equivalent EUR Term Loan B (TLB) bringing the final size to £1.1bn equivalent.

The maturities of the new senior secured notes and TLB are 2030 and 2031, respectively. As part of the £3.2bn refinancing, Asda used around £300m of balance sheet cash to reduce gross debt.

Asda also successfully extended the maturity of its revolving credit facility from August 2025 to October 2028 and was able to upsize this facility from £667m to £748m in connection with the wider refinancing.

The refinancing follows a recent upgrade in Asda’s corporate rating from Moody’s to B1 from B2, while Fitch Ratings raised their outlook on Asda’s Long-Term IDR to positive from stable and affirmed the IDR rating at B+ and S&P Global Ratings assigned a B+ long-term issuer rating with a stable outlook.

The news comes after Asda announced that its earnings rose by a quarter last year on the back of repeat customers using store loyalty schemes.

According to figures released by the chain, adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by 24 per cent to £1.1bn in 2023, against £867m the year prior.

The growth was driven by a sales uptick of 7.1 per cent (total sales or 5.4 per cent like-for-like) to £21.9bn for the period as as well as the success of the company’s loyalty app scheme, lower opening price points and the Just Essentials range.

The company’s underlying cash flow rose 31 per cent to £776m, which allowed the company to repay a £200m Co-op loan early and reduce leverage from 3.0 times to 3.9 times.

Michael Gleeson, Asda’s chief financial officer, said: “We saw strong demand from investors after taking a thoughtful and prudent approach to refinancing our near-term debt well ahead of maturities – to further strengthen our balance sheet.

“The positive reaction followed Asda’s strong FY23 results – and Moody’s upgrade of its corporate rating to B1 from B2 last week citing a material reduction in leverage and growth in underlying free cash flow.”

He continued: “The refinancing also reflects the wider strength of Asda as a diversified retail group with a strong grocery business at its core supported by a fantastic non-food offering in George and following recent investments, a major presence in the high-growth convenience and food-service markets.”