News - Sarria mentions
"We had expected a larger debt forgiveness at the original announcement so today’s announcement tallies with our numbers. Q1 numbers are not that bad and despite the lower book-to-bill ratios, the further debt forgiveness may reflect new money providers expecting more favourable terms at the expense of existing creditors and shareholders," Tomas Mannion, senior analyst at Sarria, commented after the call.
“The existing bonds in the high 90s clearly signal their belief in the refi. Following last week’s reporting, management will be looking to estimate interest among the bondholder community, but they might just have to post some more improvements before they can deal elegantly with the whole cap stack via a normal refinancing,” independent special situations desk Sarria said. “The second liens don’t …
“It’s a matter of cash flow and making sure you can afford your capital structure going forward, create a cushion for your operations,” said Wolfgang Felix, founder of independent special situations firm Sarria. “Even after the Apollo transaction, there won’t be a lot of room in the financials with the current debt levels and as a creditor, you want to be confident that the future instruments are covered.”
“The Matalan performance is in striking contrast to Pizza Express, who don’t suffer from the same FX headwind, but are more discretionary than Matalan,” Sarria noted. “We expected Pizza Express to
“They've managed to get the tender away. It is true there was not enough cash at the Vivion level and Amir Dayan had to give up some of Golden’s cash pile to keep control of Vivion,” independent special situations firm Sarria said. “Cash is king these days and this will cost him access to some future opportunities, but it’s an obvious choice.”
Sarria noted that Vivion can deal with the 2024 stub through raising debt on unencumbered hotels, or by selling hotels, one of the few asset classes currently worth anything in the UK. Sarria argued Vivion have got half a chance there and raiding Golden again is now more of a fallback option.
“We are still talking about the UK’s number two pizza chain and if this is the nadir of the affordability crisis, then the capital expenditure and inflation might allow for sales growth of 10% per annum now. To then refi in two years they’d also need to produce a margin uplift of 5%,” independent special situations firm Sarria said.
Independent special situations firm Sarria are cautious on Boparan. While Sarria remain relatively unconcerned on the competitive threats they noted that labour and electricity costs are increasing and that non-food cost inflation is not covered under existing pass-through arrangements. Additionally, the 2025 bond maturity is not so far away.
“It is dangerous to derive recovery from a valuation of the assets. This is a difficult situation and bondholder recovery will depend less on the fundamental value of the going concern and more on the constellation and number of suitors,” independent special situations firm Sarria, who last week hosted a Casino webinar, said. “All we know is that value will be transferred to the fresh cash.”
Sarria told Debtwire that if one goes back to the Teract plan, there was the EUR 500m valuation on a 15% stake, which reinforces the view that Casino French Retail should be worth around EUR 3bn in a going concern. But a further EUR 500m-EUR 600m of fresh cash is needed to bring operations up to the mark.
“The growth targets are fine. Letters of credit are the same story and every retailer has this problem. Supplier risk doesn’t always crystalise as a letter of credit but at least its manageable this way. One can adjust metrics for letter of credit but then one should adjust leverage for all retailers, but that wouldn’t achieve much,” independent special situations firm Sarria said. “That said, you can’t entirely ignore it, as usually that risk is compensated out of gross margin and not interest.”
“The Teract deal is the only deal in town,” said Tomas Mannion, a senior investment analyst at Sarria Ltd., an independent credit research firm. “Apart from a white knight sale — which this one essentially is — there is no other way.”
"The specific CS situation is mostly bedded down now, but it’s no time for complacency," said Wolfgang Felix, senior analyst at credit firm Sarria Limited. "Investors realise that these bonds contractually circumvent the concept of absolute priority to their own disadvantage."
“It’s a recognition of the fact that you need the family onboard to fix future problems because they know the company and control its surroundings,” said Wolfgang Felix, co-founder of independent credit analysis firm Sarria,
“It’s probably just a matter of catching a falling spoon,” independent special situations firm Sarria said. “But the spoon has two explosives attached, which we are very mindful of.”
“We are not lawyers, but we struggle to see a legal angle for Akin Gump. Bonds are locked up under the Adler plan with over 75% on three issues and with clear majorities in the other three,” Sarria said. “In the German voting Adler’s plan received over 75% approval for all but the 2029s. That’s all more than enough for a cross-class cram down.”
Sarria added that either plan is flawed, but called the Adler plan a “sitter”.
“They had significant write-downs on their Italian joint venture recently. CarVal’s sale of their stake, effectively resulted in a 90% write-down of the Italian SPV based on underlying assets,” independent special situations firm Sarria said. “This is an astonishing number and clearly far too much to apply across the back-book. But a number of questions linger from that episode.”
Current trading is not much of a concern yet, Sarria noted. Cash is weaker than expected and some of it will be down to an outflow of payables, but pre-funding inventory is the big concern, even with Matalan’s cash balance.
They have good liquidity and decent assets with rent linked to CPI, independent special situations firm Sarria noted. “Raising rent can of course lead to vacancies, but that’s where it pays to hold attractive assets,” Sarria told Debtwire. “On the UK hotel portfolio, after the Queen’s funeral has been televised across the world, I assume the next ten years of UK tourism are safe.”
Independent special situations firm Sarria had expected late 2022 or early 2023 would be the inflection point but noted it is now happening so much earlier. They were confident in
Wolfgang Felix from Sarria told 9fin: “Management is currently prioritising getting customers into stores and driving up overall market share rather than increasing margins. This year’s objective is definitely to maximise revenue in preference to margins.”
Should any refinancing not materialise, then there remains a risk of a debt restructuring according to a 17 June desk note from independent special situations firm Sarria.
“The Amodio’s have been to the Spanish regulator and there is now a co-operation agreement between CAABSA and OHL registered with the CNMV,” Sarria said. “If EU and US infrastructure spend takes off, then
“Matalan are somewhat anti-cyclical and have a track record of outperforming in crises. Last time in 2009, before the cotton spike, CVC even came with a GBP 1.5bn bid at 10x,” Sarria continued. “It’s a great performance any way you look at it. The subs are 3.5x leveraged on our math and are par paper.”
“An update on liquidity would have been helpful, but it was clearly not something worth shouting about. Also the timing is now sensitive while negotiating at so many levels,” Sarria said.
They will receive a boost from the Corestate stake sale but most of the Corestate stake was held at Aggregate 2, which is separate and direct holdings were small, so that should strengthen [Aggregate shareholder] Walcher’s negotiating position, Sarria added.
“Adler are marrying the pretty daughter first to generate liquidity for the treatment of the sickly daughter,” Sarria said. “They are selling good, fungible assets, which concentrates stakeholders on the riskier development book.”
Speaking on a real estate webinar today (14 October), Sarria analyst Tom Mannion said the refinancing negotiations would likely be "difficult" given
Some of the [Viceroy] valuations seem accurate, according to Sarria. “We are looking at which property is in which entity and how much debt each guarantees as well as how much money each box makes or needs.”
Sarria will host a webinar at 3pm UKT this Thursday (14 October) to discuss the European high yield real estate sector. To attend, one can sign up here.
The market expected more cash coming in at once but it didn’t, independent special situations firm Sarria noted. “We see LTV well above the 39%, but what will they buy with the cash when it comes? Amir Dayan may have cash stashed elsewhere, but we’d really like to see the OpCos.”
“When I ride a rollercoaster, I have to have my eyes wide open,“ Sarria commented. “But some people like to go with their eyes closed. Vivion is for them.”
Sarria noted they were short earlier in the year thinking they would run out of cash, and it was “astonishing” they didn’t. “The franchise is unimpaired and the move to online still stops at their price bracket, but they are now more levered than before – despite appearances,” they commented. “The EUR 100m cashflow in June only shows that the Takko had good sales and management said as much. We can rest assured that the EUR 150m [cash balance] won’t be around at quarter end.”
“To the 2024s, this announcement makes no difference,” said Sarria, an independent special situations firm. “The economics of the deal remain the same.”
“This was one of our most successful trades last year and it wasn’t Covid-related – it did well for fundamental reasons. But we did not participate in the new bond as it became clear that feed prices would eat up much of the pro forma adjusted EBITDA this year,” independent special situations firm Sarria said. “The company has good liquidity and the labour shortages may be in part transitory, but EBITDA will fall further.”
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