The early bird lost the worm, and $50 million

Sometimes the early bird gets the worm—for Kroger shareholders, the early bird got an extra $50 million loss that nobody’s talking about.

In the context of bonds issued to fund an acquisition, "Special Mandatory Redemption" terms require the issuer to buy the bonds back if the deal falls through. Sometimes the bonds must be bought back at par, costing the issuer no extra premium to issue bonds early—other times, the bonds must be bought back at a 1% premium, creating a 1% “penalty” for issuing bonds early.

In August, Kroger issued $10.5 billion of bonds to finance the Albertsons acquisition. Despite numerous indications the deal was far from likely to close, Kroger 𝘤𝘩𝘰𝘴𝘦 to issue these bonds in advance of merger closing to eliminate execution risk and avoid funding the bridge facility. The cost? $4.8 billion of Kroger’s bonds included a Special Mandatory Redemption at 101%.

In other words, the early bird here not only had to give back the worm, but had to give back the worm + $50 million.

Message me if you’d like access to the Excel with deal data on recent bond redemptions.