AA Races Towards £200m Share Sale

The UK's biggest roadside recovery service is to raise hundreds of millions of pounds from its shareholders as part of a comprehensive refinancing aimed at reducing its £2.7bn debt mountain.

Sky News has learnt that the AA is on Tuesday night finalising plans to tap investors for approximately £200m through a share placing.

The proceeds will be used to replace the balance of an expensive form of debt, known as PIK-notes, which are a legacy of the company's balance sheet structure during years of private equity ownership.

The £200m share sale will be accompanied by a refinancing of £735m of the AA's senior debt facilities, according to insiders.

The refinancing could be announced as soon as Wednesday, with the AA's results for the year to the end of January expected to be brought forward from next week’s scheduled release date, the sources said.

Executives are also expected to provide an update on the company’s strategy.

Investors who have been approached about the share sale are expected to be supportive because of the company’s strong overall performance, they added.

News of the AA’s plans comes less than a year after the company came to the London stock market through a management buy-in backed by some of the City’s most powerful institutions.

Previously part of a holding company called Acromas, the AA and its former sister business Saga (LSE: SAGA.L - news) are now separately quoted, although their share price performances have diverged since floating.

While Saga’s stock has struggled, the AA’s shares have risen by more than 60% as investors have begun to digest growth opportunities under its experienced management team.

The company is chaired by Bob Mackenzie, the former boss of Green Flag, the roadside services business, while Martin Clarke, a private equity veteran, serves as its chief financial officer.

In its flotation announcement last June, the AA said that it would not pay “material cash dividends in the near future” because it would use “surplus operational cashflow…to facilitate a sustained reduction in leverage over time”.

The breakdown service benefits from strong cashflows in the form of recurring revenues from membership subscriptions, while it is also a significant player in home services, insurance and driving tuition.

The AA, which for many years has referred to itself as "the fourth emergency service”, has 4m personal members and 9m business customers, giving it a 40% share of the roadside insurance market.

Its biggest rival, the RAC (Taiwan OTC: 2237.TWO - news) , has also been the subject of significant corporate activity during the last 12 months, announcing the sale of a 50% stake to the Government Investment Corporation of Singapore.

Another deal in the automotive sector is close to being completed with a £1.2bn reverse takeover of British Car Auctions , the UK’s biggest used-vehicle retailer, expected to be announced as soon as this week.

Insiders said that Credit Suisse (LSE: 0QP5.L - news) , Morgan Stanley (Xetra: 885836 - news) and Royal Bank of Scotland (LSE: RBS.L - news) were involved in the AA refinancing, which could still be delayed until later in the week.

Shares (Berlin: DI6.BE - news) in the AA closed up 2.3% on Tuesday, valuing the company at £2.3bn.

A spokesman for the AA declined to comment.