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Debt Advisory Update

Easter, Ramadan and Passover overlapped last weekend for the first time in three decades, which must be a sign of optimism for 2022.
There are another three public holidays in the UK in the next six weeks and summer is within touching distance.

Debt weekly image - 19 Apr 22
TL / DR: Elon on Twitter; Even More Reasons to Shop at Morrisons; Black Wednesday

1.  Everyone else is writing about Elon / Twitter so we should too

  • (I started writing this last week, when it was only that Elon Musk had offered to buy Twitter.  Since then, he’s backed down a little, Twitter has implemented a poison pill defence (filings are here) and it seems that everyone has written about it, but the best work as ever is from Matt Levine, including an explanation of how poison pills actually work.  By the time I send this, perhaps Bezos and Musk will have started an auction for Twitter).
  • Like many, I have grown to love Twitter, especially post-Trump.  I’ve learnt so much, made friends IRL and have been entertained.  But I have an anonymous account and so will never be able to mobilise 80 million followers to make me a billionaire by backing my business to a >$1tn valuation.
  • Elon Musk is less shy: after buying 9% of Twitter and then spurning an offer to join Twitter’s board (possibly averse to the fiduciary duty of acting in the interest of all shareholders), last week he offered to buy the whole thing for $54.20 (note the 4.20 reference) which would be $43bn – or about $40bn excluding Musk’s existing stake.
  • FT Alphaville has run an LBO model.  We get asked for LBO leverage assumptions all the time, often on P2Ps, and the quickest answer is “the maximum amount of debt where 50% can be repaid in 7 years, up to a maximum of 75% of EV”.  This leans heavily on the ECB and US Leveraged Lending Guidelines.
  • Applying this to Twitter would generate debt of about $14bn or about 9x EBITDA.  This would only be possible with some PIK / preference equity on top of maybe 6x cash-pay senior debt.  Twitter is already BB+ with just 0x net leverage so this would require a good piece of credit ratings work to get a usable credit rating.  We are ready for Elon’s call …
  • But this is only about 30% of EV – leaving Musk needing another c.$25bn of equity from somewhere.
  • Musk could raise another margin loan against his Tesla holding; half of this is already pledged against other loans but this could be restructured and he has about enough stock left to cover it.  However, it would be a brave bank that took on this risk given how volatile Tesla has been.  Certainly the banks would delta hedge some of their position, which may be why Tesla’s stock fell on Thursday.
  • Musk could tap some of the trillions of dry powder available to private equity and sovereign wealth.  Being a junior partner to Musk would need some careful governance arrangements given his statements that “I don’t care much about the economics at all”.  But the chance to replicate his success at Tesla may be too much to resist and Apollo is already rumoured to being taking a look.

2.  More Reasons to Shop at Morrison’s

  • We’ve mentioned Morrison’s LBO financing before and it seems that the acquisition financing might just be coming to market in the next week or so.
  • The original financing envisaged £2.4bn of senior high yield bonds alongside £2bn of leveraged loans and £1bn of subordinated debt.  Just before Russia’s invasion of Ukraine, the lead banks fortuitously privately-placed £1.2bn of subordinated debt with CPPIB.  The senior debt raise should be reduced by the £200m upsize in the sub debt, along with the pending £500m sale & leaseback of Morrison’s distribution centres.
  • This week, the three ratings agencies all updated (downgraded) Morrison’s credit ratings (B+ / B1 / BB-) which, along with a new CFO and a flurry of Companies House filings, suggests that a deal will be launched as early as next week.
  • The ratings reports and filings reveal a little more about the equity structure, with GS (West Street) and Ares each providing £650m of 11.5% perpetual PIK preference shares, and they together have 15% of the ordinary equity.  However, this means S&P regards the prefs as “debt-like” as the investors are not fully aligned with ordinary equity.
  • Morrisons also showed how it will market its financials in a recent filing which demonstrates the magic of leveraged finance:
  • Actual EBITDA for FY2022: £668m.
  • Adjusted EBITDA: £941m. Adjustments include deduction of cash lease payments (i.e. making it pre-IFRS16), add-back of direct costs of Covid and £180m of exceptional costs (including supply chain disruption).
  • Structuring EBITDA: £1,178m which also includes add-back of lost profit from Covid disruption and pro forma cost savings and “initiatives”.
  • So the highest interpretation of ‘leverage’ ranges from 9-11x, post- and pre-lease adjustment.  But I think CD&R will present leverage which is c. 5x by excluding the pref and using Structuring EBITDA.
  • Leveraged markets are probably finally ready for this deal: the past two weeks have seen two large USD / EUR loan syndications close with pricing flexed tighter (Element Materials and MKS) and Triton is testing sterling loan markets with its financing for the acquisition of Clinigen (due to close this week).
  • CD&R may have to pay up, with Asda’s secured bonds rated 1-2 notches better and now yielding 6.3%.  The banks may have to use some of their fees to sell the deal and / or take on expensive cross-currency swaps to get more of this deal done in EUR.
  • In other news in the US, Apollo and other credit funds have kindly offered to take $4bn of the debt backing Vista and Elliot’s acquisition of Citrix.  This underwritten by Credit Suisse, GS and Bank of America in January and the question will be whether they are in a hurry to sell below par …
  • Finally, demonstrating the power of leverage, the FT this week reported that TDR is marking its equity position in Asda at almost 20x its original investment after just one year.  This is partly due to the entry valuation of just 6.6x pre-leases but also due to TDR’s ability to leverage the business so that only £780m of equity was required – and most of this came from releveraging its EG Group forecourts business.  Some speedbumps along the way (such as the failed transfer of Asda’s forecourts business to EG Group) were offset by the much higher proceeds from the sale & leaseback of Asda’s distribution business (Blackstone needing a yield of only 4% vs expected 7% meant proceeds were £1.7bn vs £950m expected).

3.  Black Wednesday

  • During a long drive back from visiting family, I listened to the BBC’s “The Reunion” which pulls together key players from some significant historical event and uses hindsight to re-evaluate what this really meant.  There are some great episodes ranging from the Challenger Shuttle Disaster to the opening ceremony for the 2012 Olympics.
  • But naturally I found myself listening to a discussion of Black Wednesday, 16th September 1992, when the UK crashed out of the European Exchange Rate Mechanism and George Soros made over £1bn from shorting Sterling.  During the day, UK interest rates rose by 5% points to 15%, only to fall back to 10% within a day.
  • It may be 30 years and ancient history but it still chimes today, particularly because it demonstrated clearly that governments’ European policies can be defeated by distributed groups – laying the ground for the Referendum Party, UKIP and ultimately Brexit.  There were a few other snippets that stood out:
  • The Bank of England’s position was not credible e.g. the second interest rate rise was signposted as “temporary”.
  • The UK acting alone was not enough – we needed more support from our European partners to make it through.
  • There was a skewed risk-reward for traders: sterling could only rise by a few pfennigs at most but could easily fall by 15-20%.
  • It’s important to “go big” on high conviction trades, as Soros has said “there is no point being confident and having a small position” (more Soros aphorisms here).  To be fair, he also said “good investing is boring”.
  • Of all the things he did that day, what the Bank of America’s senior FX trader Mark Clarke got in trouble for was disclosing just how profitable it had been for Bank of America (he said £10m – in fact it was apparently closer to £20m).
  • To put this in context, Goldman Sachs made daily revenues >$100m on 53 days in 2021 alone (p105 here).
  • The Bank of America trader got a decent bonus that year; the Bank of England trader did not …

Recent UK Financings


  • HICL extended its £400m sustainability-linked RCF by 1 year, and added new lenders including Barclays, CIBC and RBC, with Credit Ag, HSBC and Santander leaving the group.  RBSi, NAB, Lloyds, ING and SMBC remain as lenders.
  • Element Materials priced $1.825bn eq Term Loan B to back its acquisition by Temasek.  Pricing tightened to E+425bp and OIDs of 99.5.
  • Hilton Foods refinanced and increased its £424m RCF.
  • Wincanton renewed its RCF to March 2026, increasing from £141.2m to £175m
  • Findel signed a new £18m sustainability-linked loan with Santander.
  • Johnson Matthey accompanied its PP (below) with £400m Govt-backed loan to finance R&D into hydrogen technologies.
  • Marshalls lined up £370m of 4-year term and RCF loans to back its acquisition of Marley, via NatWest and Lloyds – syndication is expected shortly.
  • Weir signed a $800m 5-year RCF with 11 global banks – this was downsized from its previous $950m deal.
  • Battersea Power Station extended its main debt financing of £1.6bn loans.  The Power Station development will now open later this year (incidentally, John Broome’s original 1987 plans for Battersea Power Station look amazing).


  • Johnson Matthey followed in the footsteps of Tyman plc (Numis advised) with €315m of sustainability-linked private placements.  Pricing is linked to JM’s scope 1 and 2 emissions.


  • SSE priced a €1bn investment grade hybrid bond at 4%, which represents 220bp more than its comparable senior debt but half of which is treated as equity by the ratings agencies.
  • Hexagon Housing priced the only sterling deal, £250m for 26 years at 3.625% (G+167bp).


  • Pendragon: last time, I mentioned that Pendragon had replaced its USPPs with a bank loan.  I had misread the announcement that noted that Pricoa was the lead lender / investor for the new £100m 5-year loan, so it’s more a case of “same again”.

Mike Beadle

Managing Director, Debt Advisory

Email Mike


This briefing has been prepared using publicly available information and should not be relied upon for any investment decision. Numis does not make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this briefing. Numis, its affiliates, directors, employees and/or agents expressly disclaim any and all liability relating to or resulting from the use of all or any part of this briefing or any of the information contained herein. This briefing does not purport to be all-inclusive or to contain all of the information that recipients may require. The information contained herein is subject to change and Numis accepts no responsibility for updating it.

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We are the leading provider of in-depth, high quality research on UK listed companies

Trading and sales trading (high-touch and low-touch execution)

The largest, most experienced Sales Trading and Trading teams covering UK equities

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