The owner of the B&M Bargains retail chain is issuing £250m on bonds to refinance existing debt and boost its future growth plans.
B&M European Value Retail (BME) has announced it intends to issue a £250m sterling-denominated corporate bond with a 2022 redemption date.
The fundraising will enable the group to refinance its existing borrowing, replacing its senior credit facilities with a new £300m loan and a £150m revolving credit facility.
As part of the fundraising drive, B&M was assigned long-term corporate credit ratings from rating agencies Standard & Poor’s and Moody’s.
Both assigned B&M a rating of Ba3/BB− with a stable outlook, which is three notches below investment grade.
S&P said: “We view B&M’s profitability as stronger than peers and its high-margin own-label products, which comprise the bulk of the non-grocery product mix, support our assessment of its business risk profile.
However, it warned: “The business risk profile is constrained by tough price competition in both of its markets, where B&M competes with established players of greater scale, such as Tesco, Asda, B&Q, and Argos, as well as a growing number of discount grocery and general merchandise retailers.
“This caps any meaningful gross profit margin expansion. Low brand awareness and a lack of geographic diversification, combined with execution risks linked to the group’s ambitious growth strategy, could result in a less sustainable business model than peers.”
It also warned B&M is likely to B face pressure on its gross margins arising from sterling’s post-Brexit depreciation.
Moody’s commented: “The rating in particular considers B&M’s ability to compete with much larger competitors through its careful product selection of secondary brands, private label goods and size/flavour variations of primary brands. A more narrow selection of products across a wide range of groceries and general merchandise compared to traditional retailers also enables the company to quickly adapt to competition and changing customer preferences.
“However, the rating also continues to reflect B&M’s small but growing size relative to traditional retailers, its concentration largely in the UK, and the somewhat leveraged capital structure.”
B&M’s share price has performed strongly so far in 2017 – rising 6% year-to-date – after the discount chain recorded its best ever Christmas.
Group revenues for the quarter to 24 December, increased 22% to £789.1m, including the German business Jawoll.
In the UK, B&M reported a 20.7% sales rise to £741.4m for the 13 week period, with like-for-like growth of 7.2%.
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