Couche-Tard’s US$2.5B debt offering wows

It is not the biggest initial debt offering by a Canadian company in the US$ market but at US$2.5 billion, the three-part offering by Quebec-based Alimentation Couche-Tard

Inc. that was priced this week is still very significant.

On that breakthrough deal, the company, which defines itself as the “leader in the Canadian convenience store industry,” and which has a total network of almost 14,000 stores around the world, met hundreds of U.S. fixed-income investors and when it was all over managed to secure financing on very attractive terms.

Certainly the terms were a tad better than what the issuer expected to pay when the lead managers — HSBC, MUFG Mitsubishi UFJ Financial Group and Wells Fargo Securities — launched the transaction.

In terms of a spread above comparable U.S. Treasuries, Couche-Tard ended up paying 5 basis points less than originally expected, when guidance was released. A five basis points gain on US$2.5 billion of debt is a healthy saving.

Specifically CoucheTard raised that amount of capital in three tranches: US$1 billion at a coupon of 2.72 per cent for five years; US$1 billion at 3.55 per cent for 10 years and US$500 million at 4.50 per cent for 30 years.

Couche-Tard, which chose not to comment because the issue doesn’t close until the middle of next week, was in the market for U.S. dollar borrowings largely because of a recent acquisition: late last month, it announced the closing of the acquisition of Texas-based NYSE-listed CST Brands Inc.

That US$4.4 billion acquisition was announced last August and gave the buyer more than 2,000 additional stores in the U.S. and in Eastern Canada. But on its way to closing, the buyer was required to divest about 70 U.S. stores. “They needed to raise US$3 billion of funding to finance that acquisition,” said Bradley Meiers, managing director, and head of debt capital markets at HSBC Securities (Canada), the global co-ordinator for the offering.

So why was the U.S. dollar financing so successful? Meiers listed a slew of factors: Couche-Tard was a new issuer to the U.S. so was accorded a new name premium by investors; the story it had to tell (a financing for the acquisition of a business that every motorist uses regularly) was easy; and it was launched into a “very hot market.”

“It was very well received,” Meiers said, noting that hundreds of investors received an allocation in the U.S. dollar issue. Couche-Tard’s U.S. acquisition was announced at the same time as it agreed to sell certain Canadian CST Brand assets to Parkland Fuel Corp. That transaction has still not received final regulatory approval.

In something of a twist, as part of its US$ debt offering, Couche-Tard also raised $700 million in local currency. (On that deal, National Bank Financial received the “top left” designation.) The twist: the offering of U.S. dollar notes was not contingent on the success of the Canadian notes offering, but the Canadian notes offering was contingent on the success of the U.S. notes offering.

But there was a link. Meiers said the “attractive” U.S. dollar pricing, “dragged” the secondary trading price of the company’s Canadian-dollar-denominated debt “about 10 basis points tighter.”

With its U.S. dollar debt offering almost wrapped up, Couche-Tard has now borrowed in four currencies with the others being the Canadian dollar, Norwegian krone and euro. If it wants to match borrowings with countries in which it has a presence, it has a long way to go. It has extensive operations in Scandinavia, the Baltic states, Ireland and Poland.

In recent times it is understood Emera Inc.’s US$4.45billion two-part offering last year is the largest initial U.S. dollar debt financing.