Anticipation of a forthcoming refinancing for U.K. retailer Matalan Ltd. has stepped up this week as the company’s bonds have rallied amid strong reporting from the sector, ahead of a crucial third-quarter earnings update scheduled for Jan. 17.
Listed retailers Tesco and Marks & Spencer yesterday reported strong sales over Christmas, which potentially lays the groundwork for CD&R to launch its long-awaited £6.4 billion debt financing of U.K. supermarket chain Morrisons on the back of what market observers are expecting to be strong fourth-quarter numbers. Online clothing retailer Asos also reported strong sales growth, despite supply chain constraints.
Matalan, which primarily operates as a brick-and-mortar retailer in out-of-town retail parks, in October 2021 reported a strong rebound in profits which heightened expectations that the company would refinance in early 2022 on the back of EBITDA of roughly £80 million to £90 million, with its privately placed bonds due 2022 having shot up by roughly four points to about 106.
Renewed sentiment in the sector after bumper Christmas sales has ramped up expectations that an imminent refinancing could be on the cards. "Issuers will be refinancing on last Q4 numbers, and the consensus is that Q4 was strong," said a banker. "If you look at Matalan, the market is clearly saying it is more confident about a refinancing than it was a month ago. The refinancing door is very much open to stressed credits."
The retailer's £350 million of first lien secured 6.75% notes due 2023 — which climbed roughly three points last October to around 93 — were yesterday changing hands at 96.3/98.3, according to Refintiv prices, up from a 95-bid at the start of the week. These bonds are callable at par in February.
The company's £130 million of second lien notes due 2024, which were placed alongside the first lien bonds in 2018 as part of a £480 million refinancing exercise, have also climbed more than a point on the bid this week, changing hands in a 71.2/76.2 market yesterday, according to quotes provided by Refinitiv; this is well below the February 2022 call price of 102.375.
Matalan, which is rated CCC+/Caa1, reported £537.5 million of debt as of August 2021, with £24.2 million of 16.5% priority first lien secured notes and a £14.7 million state loan provided under the U.K. government's Coronavirus Business Interruption Loan Scheme, or CBILS, due 2022. The 16.5% priority first lien notes were privately placed with existing noteholders in 2020 as part of a consent solicitation process, which also included the placement of £50 million of 9.5% PIK notes due 2025.
M&S debt is also up this week, with the FTSE 250-listed retailer reporting strong sales in both its food and clothing segments, with the former up 12.4% versus pre-pandemic levels thanks to a partnership with delivery group Ocado.
The 3.75% sterling bonds due 2026 from M&S — which were placed in 2020 and were the retailer's first deal as a fallen angel credit — were quoted at 102.13/102.78 following its results update, according to Tradeweb prices, up from 101.7-bid at the start of the week.
