S&P gives Motor Fuel loan B

S&P said it gave a B issue-level and 3 recovery ratings to the £1.6 billion loan that Motor Fuel Group (CD&R Firefly 4) plans to borrow and revised the outlook to stable from positive. The 3 recovery rating indicates meaningful recovery (50%-70%; rounded estimate: 55%) in default.

The ratings are in line with those on Motor Fuel’s outstanding loans. The agency also affirmed MFG’s B issuer rating.

MFG plans to use the loan with £650 million of preferred equity from its sponsor, Clayton, Dubilier, & Rice to buy Morrisons' fuel forecourts.

“This transaction will increase our adjusted debt-to-EBITDA ratio to 7.4x (6.2x excluding preference shares) in 2024, pro forma the full-year combination, from 4.5x in 2023; but given the group's deleveraging track record, we expect it can achieve the anticipated synergies and reduce leverage to less than 7x (6x excluding preference shares) by the end of 2025,” S&P said in a press release.

The weaker outlook reflects the view that MFG's larger scale and expertise in rolling out non-fuel operations will help earnings growth and post-acquisition deleveraging to below 7x and keep funds from operations to cash interest higher than 1.5x, the agency said.

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