Listed clothing food and homeware retailer Woolworths has successfully completed the first-ever securitisation of its in-store credit card with the issue and private placement of R1,9-billion in AAA-rated notes, the company said on Monday.
The group’s new securitisation programme, Account on Us, issued four tranches of notes with maturities ranging from two to five years at a very competitive average funding cost of 0,36% over the Johannesburg Interbank Accepted Rate.
The notes were more than twice oversubscribed, reflecting strong demand in the market, according to arranger Standard Bank.
“The notes were placed with a wide investor base, including both institutional investors and asset-backed commercial paper conduits. This provides an increasingly diversified group of funders,” said AJ Rothman, director of securitisation at Standard Bank.
“The excellent performance of the card portfolio, built on strong risk management and customer loyalty, provides a premium collateral pool for the issuance of rated bonds in the capital market.”
Woolworths will use some of the proceeds of the sale of its in-store card portfolio for the securitisation vehicle to repay a significant portion its short-term bank borrowings. At the same time, it will use approximately R1-billion to repurchase its own shares in order to improve the return on equity of its financial services business.
According to Woolworths CEO Simon Susman, the combination of the securitisation and share buyback will boost Woolworths’ return on equity by an estimated 53%, from 25,7% at June 2004, to 38,4%. This level is above the group’s weighted cost of capital for the full year.
The securitised debt issue was structured in two portions, with the AAA-rated portion comprising 85% of the total amount to be issued, and the equity (subordinated) portion comprising 15%.
International credit rating group Moody’s Investors’ Services assigned an “AAA.za” rating to the main tranche of asset-backed notes
Susman said Woolworths will begin its share repurchase scheme in about a month’s time. This will reduce the number of Woolworths shares in issue by between 95-million and 96-million, the group estimates.
“We are delighted with the success of the issue,” commented Woolworths’ director of finance, Norman Thomson. “This is a clear endorsement of the underlying strength of the card portfolio and our commitment to building shareholders value.
“With the establishment of the securitisation programme, we have secured a sustainable source of attractively priced term funding that will support the growth in our financial services business.
“The funding that has been achieved from the disposal of the in-store card portfolio combined with the share repurchase should enhance the return on equity for Financial Services and Woolworths as a whole.” — I-Net Bridge