Euro Garages’ Lenders Weigh Successful Growth Against High Leverage

From one filling station to almost 1,500 in 15 years.

Potential lenders for a financing backing the merger of Euro Garages — started by the brothers Zuber and Mohsin Issa in 2001 with a single filling station in north-west England — with European Forecourt Retail Group (EFR), are balancing the company's successful growth against its high leverage ratio.

The debt, which includes more than 850 million euros ($930 million) of new loans, will create one of the region's biggest filling station operators. TDR Capital, which acquired EFR from Delek Group in 2014, and the Issa brothers will end up with an equal stake in the merged business, to be named Intervias and operating close to 1,500 outlets.

The decision "to combine Euro Garages and EFR under a common ownership structure makes sense strategically,” Moody’s analysts wrote last week. "The merged company could benefit from greater negotiating power with both fuel and non-fuel suppliers, which should enhance profitability growth." The combined group has said it intends to utilize EFR’s fuel purchasing, distribution expertise with Euro Garages’ brand management knowledge. 

The company's underlying cash generation and expectations that fuel sales will remain resilient may give lenders comfort about the proposed level of debt. The deal is being marketed to lenders with leverage of around 5.5 times debt to earnings based on Ebitda of 300 million euros, people familiar with the matter have said, though rating firms and other market participants have calculated higher multiples.

A spokesman for Euro Garages declined to comment on the syndication of the loans when contacted by Bloomberg, while representatives for lead arrangers Bank of America Merrill Lynch and Credit Suisse didn’t immediately respond to requests for comment on the deal.

Despite the combined group's prominent position across the U.K, France and Benelux, it will operate in “fragmented and competitive markets,” analysts at Standard & Poor's Global Ratings said last week. "Big supermarkets and major integrated oil companies are the group’s biggest competitors, and in the U.K. these account for about 60 percent of the fuel sold in the U.K. by volume," the analysts note. 

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