Jan. 25 (Bloomberg) -- Tesco Plc, the U.K.’s biggest supermarket owner, sold 450.5 million pounds ($702 million) of bonds secured on store rents as Moody’s Investors Service reviews whether to downgrade the retailer’s credit rating.
The notes due in 2041 were priced to yield 275 basis points, or 2.75 percentage points, more than U.K. government debt, according to a banker with knowledge of the transaction. That compares with the 140 basis points Tesco offered on similar securities due 2040 that it sold in February last year, according to data compiled by Bloomberg.
The sale follows Moody’s review of the Cheshunt, England-based retailer’s A3 rating last week after Tesco reported Christmas sales that missed estimates and prompted it to cut profit expectations. Moody’s said today it may also downgrade about 4 billion pounds of commercial mortgage-backed securities linked to the grocer, which includes the new issue.
The bonds were issued by Tesco Property Finance 5 Plc, a special purpose company, and are backed by rental payments from Tesco stores in the U.K., said the banker, who declined to be identified because the information is private. Goldman Sachs Group Inc., HSBC Holdings Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc managed the sale.
The supermarket operator is rated an equivalent A- at both Standard & Poor’s and Fitch Ratings. Tesco has about 13.5 billion pounds of bonds outstanding, according to data compiled by Bloomberg.
Asset-backed securities package loans into bonds that can be sold on to investors. The securities typically allow issuers to raise capital more cheaply than from unsecured debt.
To contact the reporter on this story: Ben Martin in London at email@example.com
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net