S&P rates AA bonds as Acromas split rumours intensify

Standard & Poor’s (S&P) has assigned preliminary ratings to a planned bond issue by breakdown recovery service AA.

The bond issue is being seen as a prelude to the long-rumoured split of AA and over 50s service provider Saga, which are currently combined under private-equity-backed holding company Acromas.

Observers expect Saga to be floated on the stock exchange and AA to be sold.

Both Saga and AA own large insurance broking operations. The combined broking division of the two firms ranks fifth in the Insurance TimesTop 50 Brokers.

The planned bonds will be backed by cash flows from AA’s operating units.

Proceeds from the bond issue will be used to pay down part of Acromas’s  bank debt, according to S&P. Acromas took out the bank loans when it was formed in 2007 with investment from private equity houses Permira, Charterhouse and CVC.

S&P did not disclose the size of the issue. But Bloomberg, which has seen the bond marketing documents, reported that the company is seeking to raise £1.16bn from the bonds alone and secure an additional £1.9bn in funding from new bank loans.

Acromas spokesman Paul Green declined to comment on the specifics of the bond issue while it was being marketed to investors.

He said: “We can confirm that we are considering issuing bonds, the net proceeds of which would be used to repay existing bank debt. There are no payments to shareholders and no change in ownership of either Saga or the AA.”

The AA bond issue will comprise three parts. The class A1 part of the issue, rated BBB- by S&P, will mature in five years. The Class A2 bonds, also rated BBB-, will mature in 12 years. The BB rated class B bonds will mature in six years.

The different ratings of the class A and class B bonds reflect the fact that the class A bonds will have equal seniority to AA’s bank loans, while the class B bonds will be subordinated. This means that the class A bondholders would be paid before the class B investors in the event of a default.