Investor interest helps Asbury deal upsize, beat talk, but company not surprised

By Paul A. Harris

St. Louis, Mo., May 31 - Investor interest in Asbury Automotive Group, Inc.'s offering of 10-year senior subordinated notes (B3/B) took bank officials somewhat by surprise, a syndicate source told Prospect News late Friday.

Asbury was able to upsize the notes at pricing Friday to $250 million from $200 million and brought them to market at 9%, lower than price talk which put the yield at 9 1/8%-9 3/8%. Goldman Sachs & Co. was bookrunner while Salomon Smith Barney was co-manager.

But the deal's popularity did not surprise the company.

"If you look at automotive retailing over the past 30 years, it's a very strong, profitable business as compared to, for example, the manufacturers," Asbury Automotive chief marketing officer Allen Levinson told Prospect News after the pricing.

Asbury's new Price 1 venture, in which it will lease property adjacent to Wal-Mart Supercenters to sell used cars, generated a modicum of interest among the investors, according to Levenson. The concept is being tested in Houston, where within the past month the company opened two of the five locations it plans to try out there.

"There was a lot of interest in the Wal-Mart name being next to Price 1," he said.

"But the bond folks are very analytical," Levenson added, "Much more so than the equity folks. They really get into the details much more. I think they were much less moved by those kinds of things.

"Frankly, if you look at our industry - and I think that there are a lot of people who have not understood automotive retailing as an industry until very recently - it's just an incredibly solid cash flow business.

"We have a very high variable compensation structure that allows us to weather the storms very well."

Highlights of the Asbury story, Levenson said, included its "highly incentivized local management" in addition to its high percentage of luxury and mid-line imports which he said are gaining market share.

As to the timing of the deal, Levenson said the company had taken note of comparable high-yield deals that have priced during the past two months.

On March 12 United Auto Group upsized to $300 million from $225 million its offering of 10-year notes, also rated B3/B, and priced them to yield 9 5/8% via joint bookrunners Banc of America Securities and JP Morgan.

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