Asda refinances £3.2 billion debt at higher interest rates

Asda has refinanced its billion-pound debt pile as the supermarket seeks to put its finances on a stronger footing after the billionaire Issa brothers and private equity firm TDR saddled the firm with loans when they bought it from Walmart in 2021.

The firm said it successfully raised £1.75 billion of senior secured notes at a rate of 8.1%, up from a previous senior secured notes rate of 3.25%, and refinanced its £900 million Term Loan B, which was secured at a EURIBOR+4.25% interest rate, an increase on the previous loan of EURIBOR+2.75%. The new senior secured notes and term loan are set to mature in 2030 and 2031, respectively. Asda also used £300 million of balance sheet cash to reduce gross debt.

The supermarket also increased its revolving credit facility from £667 million to £748 million and extended the maturity by three years.

Asda said the refinancing, which completed yesterday, included the biggest Sterling high-yield bond this year and the second-largest sterling bond in the European leveraged finance market – only behind Asda’s original £2.25 billion Sterling bond tranche in 2021. The moves appear to have placated credit ratings agencies, with an upgrade in Asda’s corporate rating from Moody’s to B1 from B2, while Fitch Ratings raised their outlook on Asda’s long-term default rating to positive from stable.

The boss of Asda has insisted that the owners of the supermarket are still ‘in it for the long-haul’ despite reports that one of the billionaire Issa brothers who owns the business is looking for a way out.

At a hearing before Parliament in December, Mohsin Issa was questioned over his commitment to the decades-old firm he bought in 2021 in light of the complex offshore ownership structure which would help reduce the tax bill in the event it was sold. Mohsin Issa told MPs he was “in it for the long haul,” adding he was seeking to expand Asda’s store estate.

But it has since emerged that his brother Zuber is seeking to sell his 22.5% stake to private equity firm TDR Capital, which would give it majority control of the supermarket, leaving Mohsin with a 22.5% stake and US firm Walmart with a 10% share.

Asda CFO Michael Gleeson today told the Standard: “The shareholders look at this business and generally the businesses they invest in for the long-run.

“I’m not going to speculate on discussions over what Zuber might or might not do in the future.

“But the shareholders as a group do invest and grow businesses for the long run. Ours is a growth strategy and that will continue to be the case.”

Mohsin Issa is also seeking to step away from day-to-day management of the supermarket, which he had been running on an interim basis with Zuber.

Asda has yet to appoint a permanent CEO since the brothers took over the business, but Gleeson insisted the search was still on to find a CEO, adding he ruled himself out for the role.

Sales at the supermarket rose 7.1% to £21.9 billion in 2023 and its adjusted earnings jumped 24% to top £1 billion, the supermarket said today, as it was on course to open 500 of its new ‘express’ convenience stores across the country by the end of this year.