Bookrunners Goldman Sachs, HSBC, and JP Morgan priced the deal with a coupon of 5.8006%, which was 140bp over the 4.25% 2032 Gilt, from guidance of 140bp-150bp over.
“Tesco secondaries were at around 130bp over Gilts when we announced, so we offered a new issue premium that the market felt was fair,” said James Cunniffe, a director at HSBC syndicate in London. “The issue has since come in to about 137bp. Tesco senior unsecured was trading at around 100bp.”
Secondary levels widened slightly after the announcement, meaning final pricing was around 5bp outside secondaries. The premium for structured products over Tesco senior unsecured has fallen after every issue.
Cunniffe said: “Tesco have proved they can approach the market repeatedly, and every time they’ve returned, total cost has come down, and the premium to senior unsecured has reduced as well.”
The book was closer to a typical corporate bond than an ABS issue, with the sheer number of investors indicating that it went well beyond ABS. Cunniffe pointed out that a well subscribed ABS issue might have 40 investors, whereas this had more than 120. Traditional long end sterling investors dominated, but private wealth and overseas demand also accounted for decent size.
Matthew Bailey, director, structuring at HSBC in London, said: “Tesco announced its sale and leaseback programme in 2006, aiming to extract value from their store portfolio. Approaching the capital markets for funding is an efficient way to fund their stores.”
Other supermarkets, including Sainsbury’s, have done structured transactions to unlock value in their store portfolio, but Tesco has been consistent in issuing through the crisis. This new deal might demonstrate that sale and leaseback securitisations can be effective funding tools, but is unlikely to herald much new European CMBS in the traditional sense.
Patrick Janssen, structured credit products portfolio manager at M&G said: “The Tesco deal certainly isn’t pure CMBS, but I’m confident that at some point this year, the numbers will work. It would have to be prime collateral, but there’s enough prime real estate assets looking for refinancing that this shouldn’t be a problem.”