I find this credit fascinating and distinctive. Asda, the UK’s third-largest grocery retailer and second largest fuel retailer, remains a key focus for credit investors due to its subdued operational performance and sizable debt profile across both bond and loan markets. Revenue declined marginally by 0.2% year-on-year to £5.3 billion in Q2 2025, with like-for-like sales also dipping 0.2%. While this may appear weak at first glance, the trend shows a modest improvement compared to prior quarters. However, EBITDA fell sharply by 32% year-on-year, reflecting continued margin pressure. Despite this, management expressed cautious satisfaction, as the results were broadly in line with expectations set at the beginning of the year (they are “confident in the direction of travel”). Free operating cash flow improved versus Q1 2025, thanks primarily to better working capital management. The net debt remained unchanged, but the leverage ratio, as calculated by the company, worsened to 3.8x (from 3.4x in the previous quarter), primarily due to the EBITDA decline. Notably, the 3.4x figure had been used as the benchmark during the marketing of the 700 million 6-year bond issued in June25. The liquidity remains ample, estimated at around £1.5 billion, including an undrawn RCF. The tone of the Q2 management’s communication was notably more constructive compared to Q1, reflecting improved cash dynamics and operational progress. Between Q1 and Q2 2025 presentations results, Asda- B1/B+ for CFR- successfully issued €700 million of Senior Secured Notes due 2031 NC2. A debut in the euro currency bond market. The proceeds were used to refinance the existing £ SUNs due 2027 (coupon 4%) and the stub amounts of the £ 2026 SSNs (coupons 3.25% and 4.5%). The 2031 issuance was well-received, with the final coupon set at 8%—tighter than IPTs and with the bond amount upsized following favorable pre-sounding feedback and good orders in syndication. However, this refinancing highlighted the significantly higher cost of debt the company now faces compared to four years ago. This new reality will continue to pressure levered free cash flow and limits financial flexibility going forward (ASDA pays today roughly 600 million of cash interest every year against 400 million in 2023). The decision of issuing a senior secured note (at 8%, I repeat) at the end of June has been driven by the necessity to mitigate the interest rate cost charge. The docs allowed the company to issue in SSN (a key aspect and a point of criticism: did the existing investors in 2024 secured notes and term loan know the possibility to issue more secured debt according to the docs?). The performance of ASDA’s bonds has been strong in recent months. The GBP SSN 2030s have rebounded by more than six figures from their April 2025 lows, and the recently issued EUR SSN 2031s are trading above 101.25. On the surface, market sentiment appears favorable. However, it is worth noting a contradiction: the improved bonds performances and the meaningful retracement from April’s tumble, come amid worsening leverage metrics (still contained but showing more leverage in the balance sheet), ongoing market share erosion, and negative outlooks from rating agencies. You can see here the powers of a positive credit market and risk-on investors’ approach. Since mid-2024, ASDA has attracted significant investors’ attention, particularly when it refinanced the 2026 maturities at substantially higher costs. At that time, net leverage stood at 3.1X (3X in December 2023). Some market participants argued the new debt was attractively priced. I disagreed — in my view, the liabilities pricings in 2024 accurately reflected the right risk profile. ASDA trading operations were good at the end of 2023 financial year; the issues surfaced in the course of 2024. This development was not unexpected to those familiar with credit and sector analysis. One final comment: the April 2024 jumbo refinancing highlighted a lack of pricing awareness among some UK investors, who rolled into the new deal — with a materially higher coupon — seemingly without questioning the terms and the circumstances. Was ASDA the same borrower they used to invest in? This insight is based on direct experience, as I advised some of the participants in the transaction. Do I like today the ASDA credit? It remains a name to study and watch (it received attention during the recent HY conferences in London but in an oversimplified examination), but I maintain a cautious stance at this time after the debt credit spread compression (not linked to interest rates’ movements). The UK grocery market presents clear structural and operational challenges: intense pricing pressure among direct competitors and discounters, uncertain inflation trajectory, fragile UK consumer sentiment with changes in spending trends, low and pressured EBITDA margins, market shares positioning with limited scope for price-led recoveries. In addition, there are other credit related risks, developments and market noise circulating around ASDA name that should keep investors focused and concentrated (I do not use the word concerned) in doing deeper analysis and a comprehensive due diligence. I do not write about those points in this text because they represent the key components of a well-rounded analytical framework. The competitive peer set in the UK shows a very interesting credit curve spread, with credits scattered across the curve. ASDA, in particular, remains wide for reasons that appear justified under my point of view. Some superficial investors find the bonds cheap to the general HY index and vs. UK competitors. On the opposite I find them expensive at current yields (always in a risk/return perspective). The recent spread compression across the borrower’s capital structure—over the past four months—may not fully reflect the fundamental risks still embedded in the company’s story. While sentiment has improved, the company’s core operational and financial challenges remain intact. While ASDA has made progress on liquidity and refinancing, the credit faces the persistent headwinds mentioned above, in addition to certain intrinsic risk factors. I would prefer a more defensive or neutral positioning until a clearer picture emerges around margin stabilization, leverage trends, and competitive positioning. The low LTV structure is certainly a positive aspect, but it's not a new feature because it has always been part of the credit story. Importantly, it did not shield the credit from significant volatility, as evidenced by the low prices touched in April. In my view, there will likely be more attractive entry points ahead for the bonds because the journey to recovery is going to take some time(this reflects the company’s own framing of the situation). The euro-denominated term loan is held by CLOs, which are expected to maintain their positions irrespective of market conditions or ASDA’s performance.

ASDA: the slow recovery. Enjoying it with more conscious pace