Bankers Scrap for a Piece of $3.1 Billion Gas Station Deal

Calls go into Clayton, Dubilier & Rice as leveraged loans and junk bonds are considered for possible Morrisons sale to MFG.

(Bloomberg) — Deal-starved bankers are jostling to get a piece of the financing action on British grocer WM Morrison’s potential £2.5 billion ($3.1 billion) sale of most of its gas stations.

The putative sale to Motor Fuel Group Ltd. is still in the very early stages, according to several people familiar with the talks. But they say debt financiers have been hitting the phones to offer their services to Clayton, Dubilier & Rice, the private equity firm that owns both Morrisons and MFG.

Bankers are floating various credit options, including leveraged loans and high-yield bonds denominated in sterling and euros. Some want to tap the dollar debt markets too, which offer a deeper pool of liquidity. Other options could involve private-credit providers putting together a sterling tranche.

CD&R, Morrisons and MFG declined to comment. 

Morrisons has struggled in recent years to keep pace with British rivals, and its finances have been under pressure since CD&R bought the business in a 2021 deal that loaded billions of pounds of debt onto its balance sheet.

Investment bankers are working out how much of the financing for the new deal they’d be willing to stump up, and whether the whole transaction could be funded with debt, according to the same people, who asked to remain anonymous discussing commercially sensitive information. The working assumption is that equity will be needed as well, they added.

Some banks still have hung debt on their books that they couldn’t unload after financing CD&R’s takeover of Morrisons.

CD&R had looked to sell MFG, the UK’s largest network of convenience retail and forecourt sites, last year but that process stalled as many high-profile deals fell victim to a worsening macroeconomic environment.

Better Option

Despite that, MFG is well liked in leveraged-debt markets, having performed strongly under CD&R’s ownership. Over the past five years or so it has cut its debt from around 6.5 times earnings to below 4 times, the people familiar said, making it an attractive candidate to load up with more borrowing.

MFG last tapped the leveraged-loan market in March when it amended and extended around £2 billion of euro- and sterling-denominated debt to 2028.

Meanwhile, Morrisons’ 2027 bonds rose on the news of the possible sale of 340 gas station forecourts, first reported by Sky News. The expectation is that any proceeds would be used to pay down some of the supermarket chain’s debt, according to the people familiar.

READ MORE: Morrisons Bonds Gain on Potential Gas Stations Sale

The Morrisons-MFG talks have some similarities to rival grocer Asda’s purchase earlier this year of forecourt operator EG Group’s UK and Ireland business. Both companies were owned by the billionaire Issa brothers and private equity firm TDR Capital. But bankers pointed out that versions of that tie-up had been under consideration for about two years.

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