The Long and Short
7-Eleven bonds could be candidates for a tender
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Since late last year, 7-Eleven’s (SVELEV: Baa2/A) parent company, Seven & I Holdings, has reportedly considered a management buyout to take itself private as defense against an outside takeover. Just last week, a consortium reportedly approached Citigroup and Bank of America for help taking the company private. The banks’ primary role apparently would be to refinance the existing US debt. Taking out the existing senior unsecured debt appears to be a priority for the consortium. Because the buyout is being pursued internally, the prospective transaction would not qualify as a “change of control triggering event” under the corporate bond indenture, and not subject to a mandatory put at the $101 change-of-control price. Therefore, it appears more likely the bonds would be taken out in a voluntary debt tender offer, likely at a significant premium to current market prices.
In August of 2024, Canadian Circle-K owner Alimentation Couche-Tard (ATDBCN: Baa1/BBB+) approached the Japanese-owned Seven & I Holdings about a potential takeover (initially around $31 billion). Several proposals were made with higher prices and subsequently rejected by Seven & I, citing insufficient offer prices. Seven and I also announced plans to spin off its non-core businesses into a new holding company to unlock shareholder value, in a defensive move to fend off the approach from ATDBCN.
ATDBCN continued to pursue the 7-Eleven owner, hoping to entice shareholders to consider a buyout of the complete operations. Eventually, Seven & I Holdings announced that it was considering a management buyout to take itself private with the support of the founding Ito family in a transaction at the time worth around $58 billion. With funding from banks and a restructuring of its large debt footprint, management believes that a public-to-private transaction could help navigate a path forward without worrying about the short-term fluctuations in share price. Later, Seven & I stated that the buyout would also include a 3-way split of the company, including an IPO of its North American operations to maximize value.
7-Eleven’s existing US dollar debt capital structure largely stems from its acquisition of Speedway in May 2021. All the current public US dollar-denominated debt outstanding was issued in a debt launch in February 2021. As a result of the timing, the debt currently trades at very deep discounts to par. It is worth highlighting that while the debt issuer receives significant support from Seven & I Holdings, the holding company does not explicitly guarantee any 7-Eleven debt obligations besides the commercial paper program (Exhibit 1).
Exhibit 1: 7-Eleven ownership structure and debt obligations following the 2021 Speedway acquisition
Source: Company Filings, 2021 Debt Offering Circular
Current spread levels on SVELEV debt compared to peers appear to reflect a lot of uncertainty relative to the company’s split BBB/A ratings profile (Exhibit 2). This is due not only to the ongoing uncertainty bidding war between ATDBCN and Seven & I, but also due to operational challenges that helped spur the competing strategies in the first place.
Exhibit 2: SVELEV credit curve compared to investment grade retailer peers
Source: Santander US Capital Markets LLC, Bloomberg/TRACE G-spread indications
A public-to-private management buyout would likely be a highly leveraged transaction. Again, investors should not anticipate that a management buyout would trigger the 101% change-of-control covenants in the 2021 bond indenture. The language specifically carves out a buyout conducted by Seven & I Holdings. Given where the bonds are pricing (longer-dated debt trading south of $60 price), the market clearly does not appear to be pricing in much likelihood of a $101 or par takeout. However, it does seem like a tender with a premium over current pricing could be possible. On February 6, it was announced that the consortium approached Bank of America and Citigroup for bank financing, specifically to refinance the debt of Seven & I Holdings’ US unit.
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