Wednesday, June 30, 2010

Tesco Nearing $1.4 Billion Sale Leaseback of 41 Supermarkets Across UK

Reuters - June 29, 2010

Supermarket group Tesco Plc (TSCO.L) plans to sell a 30-year benchmark sterling bond backed by rents generated by a portfolio of its supermarkets, an official at one of the banks managing the deal said on Tuesday.

HSBC and Goldman Sachs are managing the (30-year) sale and leaseback deal, which will be issued via Tesco Property Finance 3, the official said.

News of the proposed deal comes less than a year after the blue chip retailer tapped 565 million pounds from the sale of a similar batch of property-backed bonds in September.

That sale followed a similar deal in June 2009, which raised 431 million pounds.

Moody's Investors Service assigned a provisional A3 rating to the bonds, which it expects to total 950.15 million pounds, although the official said the final size had yet to be determined.

The bonds are due to mature in April 2040 and would be supported by a portfolio of 41 supermarkets across the UK, Moody's said.

The proposed issue would have a slightly lower total leverage based on the expected issuance amount compared with its previous deals, it added.

"In addition, in this transaction, the tenant has an option to terminate the occupational leases in September 2020 subject to certain conditions in the lease agreements being fulfilled," said Moody's.

Standard & Poor's and Fitch are expected to rate the bond at A-, the official said.

Moody's has estimated the market value of the portfolio at 853.1 million pounds, taking into account the break option of the leases in September 2020.

(NOTE: Sources indicate the 10-year lease break clause is all or none, the initial unlevered yield on the sale leaseback is 5.0%, and the 30-year fully-amortizing bonds sold for around 170 basis points over 30-year gilts (+/- 4.20% + 1.70% = 5.90%.) Sphere: Related Content

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