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Private equity-owned Asda has been hit by a sell-off of its bonds and loans as investors in the struggling UK supermarket chain grow concerned that accelerating sales declines will jeopardise its turnaround.
A decline in the price of Asda’s traded debt that began in November has picked up pace this year after industry data showed that the supermarket chain, which employs over 150,000 people, was the industry’s biggest loser over the Christmas trading period.
Asda’s sales dropped by 6.5 per cent in December, whereas all of its main rivals reported an increase, according to researcher Nielsen IQ.
A €1.3bn term loan issued by Asda in 2024 has dropped to a record low of 88 cents on the euro, down from 96 cents in November. Meanwhile, €700mn of Asda’s bonds maturing in 2031 have fallen to 94 cents on the euro, having traded at par as recently as October.
Debt traders cited concerns about Asda’s high leverage and worsening performance — even as it invests heavily in cutting prices — which threatens to limit its flexibility to raise fresh capital.
“Asda cuts prices, yet every month they still post negative like-for-like sales when grocery inflation is running hot,” said one high-yield bond investor.
The UK’s third biggest supermarket chain has lost substantial amounts of market share since being acquired by private equity firm TDR Capital and the billionaire Issa brothers in a £6.8bn leveraged buyout in 2021. The subsequent rapid increase in interest rates pushed up Asda’s financing costs and the retailer has failed to appoint a permanent chief executive.
TDR, which took majority control in 2024, appointed retail veteran and former Asda executive Allan Leighton as executive chair 14 months ago in an effort to restore its fortunes.
Leighton has since overseen price cuts across 17,000 products, equivalent to more than two-thirds of its food range, as part of efforts to regain market share.
Rating agency Fitch has estimated the move will push Asda’s leverage up to 6.9 times earnings before interest, tax, depreciation, amortisation and rent this year, compared to 5.7 times last year. Asda’s headline debt figure stood at almost £4bn in December 2024, excluding £3.8bn of lease liabilities.
“Turnarounds take a long time and it’s like steering a tanker,” said Bernstein analyst William Woods.
“[But] you would have hoped that the investment and the ‘fixing the basics’ — availability, store quality and doing some price investments — would start to feed through [by now],” he added.
Asda said it was in the early stages of its transformation and that its focus on being the cheapest ‘traditional’ supermarket was beginning to pay off. The company added that it was “making progress where it matters most for our customers by helping them save money”.
Leighton, who helped steer Asda away from bankruptcy in the 1990s, has predicted it could take up to five years to fully turn the business around this time. That goal was pushed back by six months in November following persistent problems related to a £1bn project to switch from the IT systems of previous owner Walmart which has resulted in poor stock availability.
Under TDR’s ownership Asda has sold chunks of its property portfolio to help pay down debt and bolster its finances ahead of a looming repayment to Walmart that could be as much as £900mn.
Asda said it had a sustainable capital structure with the majority of its borrowings secured into the next decade and that its free cash flow generation meant it could “comfortably” cover all debt obligations.
The UK’s supermarkets have kicked off the new year with a round of price cuts. Asda last week pledged to undercut the discounted prices available to loyalty card holders at rivals Tesco, Sainsbury’s and Morrisons on more than 2,300 groceries.
Yet investors in Asda’s rivals appear unperturbed. Since Leighton warned last March that Asda would undercut competitors by between 5 and 10 per cent, shares in Tesco and Sainsbury’s have risen by 13 per cent and 22 per cent respectively.
“They have rallied so strongly because basically people just don’t think [Asda] is a threat,” said Woods.