Fitch Ratings has assigned
A full list of rating actions is below.
The
Key Rating Drivers
Refinancing Risk Addressed: The group has now refinanced
New Debt Matures After Second-lien: The new SSN and TLB mature in 2030 and 2031, respectively, after the second-lien debt (
Profit Growth Execution Risk: Our overall EBITDA (post rents) forecast in 2024 is near
Walmart Instrument Treated as Debt: We now treat the original
Deleveraging Potential: We believe ASDA has the potential to deleverage due to its cash- generation capacity but gross debt reduction has been limited since its LBO in 2021. Prior to today's refinancing it has only partly repaid its term loan A and fully repaid its
Positive FCF; Improving from 2025: We expect positive free cash flow (FCF) generation to 2028, but suppressed in 2024 due to costs associated with IT restructuring linked to 'Project Future'. At around
Larger Business Scale: ASDA is now of a larger scale and more diversified following acquisitions. We forecast 2025 EBITDAR will exceed
Resilient Food Retail Demand: ASDA has a strong business model in a resilient but competitive
Derivation Summary
Fitch rates ASDA using its global Food Retail Navigator. The acquisition of
Fitch views ASDA's and Market Holdco 3 Limited's (
We expect around a 1.0x difference in EBITDAR leverage between ASDA (5.0x) and
Key Assumptions
Fitch's Key Assumptions within our Rating Case for the Issuer:
Overall group revenue to grow on average by nearly 2% in 2025-2026 from
ASDA's standalone revenue slightly lower in 2024, due to a decline in petrol revenue (14% decline in volume). Revenue to grow on average around 2% for 2025-2027, as ex-petrol revenue growth is partly offset by slowly declining fuel volumes
Acquired EG Group
Acquired Arthur revenues estimated at near
For both acquired businesses we expect growth in grocery revenues post store conversions to the 'ASDA Express'
For both acquired businesses we expect a slight reduction in petrol pump prices, albeit together with gross profit margin per litre, remaining above ASDA legacy sites'. For EG sites we expect an uplift in fuel volumes from price reduction in 2024, followed by gradual slow declines to 2027. Volume decline to be compensated by an increase in margin, resulting in broadly flat gross profit
EBITDA margin to improve to 5.3% in 2026 from 3.7% in 2023, driven by growth of the core business, non-fuel gross profit margin improvement for core ASDA business, while containing sales, general and administrative costs, alongside around
Annual working-capital inflow of about
Average capex of about
Exceptional costs of around
We treat Walmart PIK instrument (
No dividends or major M&A activities over the next four years
Recovery Analysis
Fitch's Key Recovery Rating Assumptions:
Under our bespoke recovery analysis, higher recoveries would be realised through reorganisation as a going-concern in bankruptcy rather than liquidation. We have assumed a 10% administrative claim.
The going-concern EBITDA estimate of
We apply an EV multiple of 6.0x to the going-concern EBITDA to calculate a post-reorganisation EV. This multiple is aligned with
ASDA's upsized
Our waterfall analysis generated a ranked recovery for the senior secured notes, term loans, RCF and private placement facility in the 'RR2' band, indicating a 'BB' instrument rating, two notches higher than the IDR. The waterfall analysis output percentage on current metrics and assumptions is 85% (previously 81% for the senior secured debt pre-refinancing). The senior second lien debt (
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Continued lfl sales growth along with improvement in gross margin, successful integration of acquired businesses and delivery of synergies, plus cost savings to offset operational cost inflation, leading to growth in EBITDAR and FCF (over 1% of sales)
EBITDAR gross leverage below 5.0x on a sustained basis
EBITDAR fixed charge cover above 2.0x on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
We could revise the Outlook to Stable on a lack of progress in growing earnings and improving FCF, with EBITDAR gross leverage failing to approach 5.0x in 2024 as a result
Lfl sales decline exceeding other big competitors', inability to grow profits, failure to integrate and generate synergies from acquired businesses, and 'Project Future' cost overruns leading to low-to-neutral FCF, and reduced deleveraging capacity
EBITDAR gross leverage above 6.0x on a sustained basis
EBITDAR fixed charge cover below 1.7x on a sustained basis
Failure to address upcoming debt maturities 12-15 months in advance
Liquidity and Debt Structure
Adequate Liquidity: Liquidity is adequate with a forecast of around
We project ASDA's cash balances to build up to 2027 due to positive FCF generation, particularly after one-off costs of 'Project Future' end in 2024. This would leave ASDA with deleveraging capacity.
Issuer Profile
ASDA is the third-largest supermarket chain in the
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
ASDA has an ESG Relevance Score of '4' for Group Structure due to due to the complexity of the group structure with a number of related-party transactions. This has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
(C) 2024 Electronic News Publishing, source