Macquarie Capital Advisers closed the refinancing of the Moto motorway service station businesson March 18, comfortably meeting its June maturity deadline. Macquarie acquired the asset at the height of the boom, but Moto’s resilience to the downturn spurred strong interest from both the bank and bond markets. The key challenge for Macquarie, therefore, was marshalling this appetite into a structure more reflective of the post-crisis market.

Moto runs 63 motorway service stations across the UK, which feature well-known brands including Marks & Spencer, Burger King, Costa Coffee and WH Smith. The highly specialised nature of Moto, however, makes it a difficult asset to classify. At the time of the 2006 acquisition, banks and ratings agencies were comfortable with treating Moto akin to infrastructure. Following the financial crisis, however, its status has become far more ambiguous.

Although banks have shifted away from viewing Moto as infrastructure, its credit outlook is vastly more stable than typical retail assets. Although Moto’s profits are susceptible to traffic risk and fluctuations in fuel prices, they are far less dependent on the strength of real incomes than those of conventional retailers. Customers generally stop at service stations out of necessity rather than choice, with the average Briton stopping at a motorway service station twice a year and spending a shade under £5 each time.

The resilience of Moto, when compared to standard retail assets, is borne out in its performance. Moto has met its Ebitda projections every year since 2006 and has exceeded the banks’ original base case. For example, profits before interest, tax and amortization rose from £44 million in 2007 to £52.6 million in 2008, and further still to £64.8 million in 2009. “Management has been good at growing the business during a difficult economic period,” said one banker that committed to the bank refinancing.

Bank liquidity, therefore, was not a pressing concern for Macquarie in closing the refinancing. Instead, a far greater challenge was posed by the structure of the original financing. Macquarie financed its acquisition of Moto in 2006 through £555 million of 5-year senior debt priced at 150bp over Libor and £41.5 million of junior debt priced at 300bps over Libor stepping up to 350bp over Libor in year 3. Dresdner, Mizuho and Calyon arranged the senior debt and then syndicated it to around ten other banks. The purchase price was not disclosed but is believed to have been about £600 million which, supported by drawn acquisition debt of £491.5 million, represents a debt:equity ratio of 82:18.  This aggressive leverage, while appropriate at the height of the boom, became vastly out of step with the post-crisis market. To remedy this, Macquarie undertook a tripartite refinancing comprised of senior bank debt, junior bonds and equity.

HSBC, ING, WestLB, Scotia Capital, Credit Agricole and Macquarie were the mandated lead arrangers on the £450 million senior debt facility. The six MLAs took the biggest tickets, along with Deutsche, and together the seven banks provided around 80% of the total debt amount. For the remainder, the principal banks from the original financing, such as Mizuho and Commerzbank (which bought Dresdner in 2008), returned, along with three new banks. The debt has a five-year tenor, matching that of the original mini-perm financing.

The debt is split into a £400 million term loan and £50 million of undrawn debt, comprising capex and working capital facilities. The majority of the debt, £405 million, will need to be repaid as a bullet at maturity, with just £45 million amortising from 2012. There are cash sweeps in place, but lenders say they were conscious to set these sweeps at levels that did not hamper reinvestment in the assets. The new senior debt pricing begins at 325bp over Libor, and rises by 25bp in each successive year.

Finding significant interest from high-yield investors, Macquarie supplemented this bank debt with £176 million of second lien notes due 2017. Deutsche, Credit Agricole, HSBC and ING placed the junior notes, rated CCC+ by Standard & Poors. The four approached investors in London and mainland Europe, before the pricing the bond for a coupon of 10.25% on March 11. The leads sold the bonds at a discount of 9.66774%, which equates to a yield to investors of around 11%. Discounting was required, as many of the target funds preferred an element of discount to support the pricing on the secondary markets.

The sponsors rounded off the financing with a modest £25 million equity investment. Macquarie Capital, however, no longer holds an equity stake directly. Although Macquarie bought in for 34.3% of the original £35 million equity investment in 2006, this was done with the intention of selling down its stake. Indeed, by mid-2009 Macquarie’s direct holding stood at virtually 0%. The current Moto shareholders are five third-party funds (Motor Trades Association of Australia, AustralianSuper, EPIC Holdings, Westscheme, and Statewide) and three Macquarie-managed high net worth funds.

Despite this additional equity investment, Moto remains highly leveraged. Debt-to-Ebitda ratios are at the top end of the market, with S&P's adjusted total debt-to-Ebitda ratio around 7.5x for the financial year ending 31 December 2011. As a result, under the terms of the bank debt, Macquarie is required to ensure that further deleveraging takes place over the next five years. Concerns over leverage aside, S&P raised Moto’s corporate credit rating from CCC+ to B following the refinancing.

Jack Newall and Sergio Ronga, in Macquarie Capital Advisers' UK and Europe debt advisory group, say: "Having worked on this refinancing for several months, we had looked at several options before determining that a combination of the high yield and senior debt markets would give Moto the best outcome. It was clear during the roadshow that investors had a great deal of time for Moto's management and this, together with the company's strong performance, helped Moto achieve a solid credit rating and ensured a well-priced and successful transaction. With comparatively high leverage at over 7x debt to EBITDA the deal demonstrates that for an appropriate credit there remains strong appetite in both the bank and the capital markets."

Moto Hospitality

Status: Financial close 18 March 2011.
Size: £649 million.
Location: United Kingdom
Description: Refinancing of a motorway service station chain.
Sponsors: Motor Trades Association of Australia Supperannuation Fund (26.57%); AustralianSuper (18.36%); EPIC Holdings (17.49%); Macquarie Spectrum Holdings I (10.59%); Macquarie Beteiligungsportfolio IV (10%); Westscheme (6.22%); Macquarie Prism (6.08%); Statewide Superannuation (4.68%)
Bank debt MLAs: HSBC, ING, WestLB, Scotia Capital, Credit Agricole, Macquarie.
Bank debt participants: Deutsche, Commerzbank, Mizuho.
Bond bookrunners: Deutsche, Credit Agricole, HSBC, ING.
Lender legal adviser: Linklaters
Sponsor legal advisers: Clifford Chance and Latham & Watkins