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Bloomberg
The owners of Asda Group are considering piling debt onto the supermarket chain to raise the money to buy Boots, another fixture on UK high streets.
Brothers Zuber and Mohsin Issa, alongside TDR Capital LLP, have discussed saddling the supermarket with as much as 4.5 billion pounds ($5.6 billion) of additional debt, on top of the multi-billion pound package that funded the firm’s buyout last year, according to several people with knowledge of the matter who asked not to be identified because the talks are private.
The new debt will go towards the approximately 7 billion-pound asking price for Walgreens Boots Alliance Inc’s international drugstore unit and could come alongside other, riskier forms of borrowing to reduce the brothers’ and TDR’s equity contribution, the people said. They are also considering selling off Asda assets to raise the money for the equity stake, they added. The Issa brothers and TDR declined to comment.
Asda’s owners will look to use loopholes in the supermarket’s financing documentation and space within its permitted debt baskets to raise the additional cash, the people said. The supermarket chain has deleveraged since its buyout, the people said, so it will be able releverage again. By combining earnings with Boots, Asda will be a much larger entity than it already is, enabling it to carry more debt.
At least three of Asda’s
existing creditors contacted by Bloomberg weren’t aware of the plans under consideration to raise additional debt on the company. And it’s unclear whether Asda will maintain its BB credit rating if it introduces this additional financing to purchase Boots. Asda may wind up with about 8.5 billion pounds of debt, if it adds the additional 4.5 billion pounds being discussed as part of the Boots deal. The company currently has 3.25 billion pounds in outstanding bonds and a 845 million euro leverage loan.
Bids for the sale are due by May 16 and potential buyers, including a joint bid by Apollo Global Management with Mukesh Ambani’s Reliance Industries, are in talks with lenders about how to finance their bids. The billionaire Issa brothers have also expressed interest in McColl’s Retail Group, a UK convenience chain that’s close to collapse.