International Distribution Services (IDSLN; NR/BBB Neg/NR) Revised offer details

• £2.3b in debt to be used which will consist of £1.1b in term loans out to 5-6yrs with rest (implies £1.2b) in bridge loans to be refinanced into with bonds in next 2-3years of closing - or to be repaid with proceeds from EP holdings (Bloomberg interview, head of M&A EP Group).
• Again IG ratings its committing to quiet firmly; "The package is structured in a way that IDS will maintain an investment grade rating; it was a condition for us".
• IDS currently holds £1.5b in bonds & £1.4b in leases (gross £2.9b) against £900m in cash. Against adj. EBITDA of €500m last yr it left it gross 6x levered, net 4x. Earnings is expected to climb ~70%yoy to consensus £965m - if that amounts even on EP debt load, we see gross 5.4x net 4.5x - firm downgrade territory (into BBB-) - which we are already pricing to.
• High beta to earnings turnaround, hedge for HY ratings on screen cheap 28s is the 26s (par put on CoC kicks in) - 50bps annual shaving in carry vs. equal rating bonds for the hedge. As we said previously will be needed for those that see earnings turnaround/operational issues noting at Z+160/B+200 HY ratings already well priced.

BBG ARTICLE: CORRECT: Kretinsky to Use £1.2b of Equity, £2.3b of Debt for IDS