Omicron hampers CD&R’s debt-fuelled Morrisons buyout

A private equity firm has delayed plans to raise £6.6 billion of debt to finance its acquisition of Morrisons.

Clayton, Dubilier & Rice (CD&R) had intended to wrap up the deal in late November, after winning Britain’s fourth-largest grocer in an auction two months ago.

However, the Financial Times reports this has been pushed back to 2022 as the market grows nervous about the latest Covid variant, Omicron.

Documents show CD&R will take on £2 billion in term loans from banks, a £1 billion revolving credit facility and £3.6 billion in bonds.

READ MORE: Chickens to ‘suffer in silence’ as Morrisons sacks activist

Relative to profits, this is higher than the debt shouldered by the Issa brothers and private equity firm TDR when they bought Asda earlier this year.

Last month, a junk bond investor called the Morrisons financing a “step too far”, noting that the debt was not far off the company’s £7.6 billion enterprise value in June. 

He added that the borrowing would not give the supermarket “much wiggle room” if performance declined.

“They may well prefer to wait until the market calms down,” he suggested.

Many analysts expect that, like Asda – which sold its warehouses for £1.7 billion in June – Morrisons will offload assets to reduce its debt.

CD&R has previously said it “does not intend to engage in any material store sale and leaseback transactions”, but has not ruled them out altogether.

The company declined to comment.

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