Adler Pelzer: Near par, the bonds have 20 points of downside if / when liquidity drops and the company requires fresh cash. This could very well happen around mid-2025. If not, the RCF becomes current in October ’25 and even though it is super sr. we could imagine problems arising with its extension if volumes drop in H125, which they might.

We see no upside to the bonds.

ams OSRAM: AMS Osram bonds have traded down 5-6pts to 99% between Q2 and Q3 results, on the back of weaker semiconductors and, specifically, weaker automotive demand.  The underlying guidance for market recovery has slipped into Q2 FY25, albeit the Company remains bullish for the full year.   In the short term, the success or failure to exit the Kulim factory lease will have a major impact on the bonds.  Any exit of the facility should see leverage reduce by 0.8x, which will give 3-4pts of upside.  This is less than the recent drop, but until signs of a recovery in the end markets, the bonds are unlikely to return to the 105-107 level. 

We see the downside from the current 99% level as limited, given the lack of upcoming maturities and relatively high (10.25%) coupon.  The Company have a refinancing need in FY26, but in the meantime, the bonds are unlikely to trade below a 12% YTM (95%). 

Antolin: The bonds are trading with approx. 12% YTM as the company is expecting a major WC inflow in Q4, as well as proceeds from asset sales. Should the automotive sector maintain its volumes in 2025 the bonds could tighten into the mid-single digits.  

On the downside, however, we see the bottom around 60c/€ if WC substantially flows out again in Q125 as per usual seasonality and if volumes drop further. The company only has limited liquidity and the family is probably in the same situation. 

AroundTown: The upside for AroundTown perps is c. 5pts as we continue to see support for real estate bonds in the market.  We expect dividends to recommence from GrandCity Properties, which will boost the credit profile of AroundTown.  The downside for AroundTown centres on the macro picture as we see limited idiosyncratic risk in the name.  

ASDA: We prefer the new SSNs over the stub of 2026 SSNs; we see the yield pick-up in the 2030 notes as attractive because we see default as a remote possibility. The 2030 SSN Yield is 8.1% (at 100p/£), giving 3 points of upside. The downside is 7 points (if the SSNs widened to 10%). Without significant deterioration in the UK economy, we see this as unlikely, and an 8%+ yield is attractive. The SUNs yield 6.7%, but we expect them to be refinanced in late 2025, which would give a return of around 11%. The upside is 6 points, and the downside is 12 if the SSNs traded wider, pushing the SUNs to 13%. Again, we see this as unlikely. With two large shareholders beneath the SUNs and given their small size, we do not view this instrument at risk of an opportunistic restructuring without significantly impairing the SSNs. Our DCF has £5bn+ in equity value beneath the debt stack. ASDA has £9bn of freehold assets and could engage in sale and leaseback deals to generate liquidity, if necessary, albeit layering for the SUNs and SSNs.

Atalian: We value Atalian bonds at around 80c/€, about 10c lower than when the restructuring was completed. The SSNs trade at 50c/€ and we expect they will trade sideways until Q4, we see 30 points of upside over the next two years and about 5 of downside. Trading at Atalian has not improved as expected in 2024; the failure to pass on inflationary costs has seen EBITDA margins in France fall to 5% from 5.5%. H2 24 will not see much relief, but we expect 2025 to be better and 2026 to improve further (as inflation drops). The company has €100m in cash and should be free cashflow positive, including earn-out payments of up to €63m in Q1 25 (we have applied a 50% discount to this in our model).

Boparan: Currently trading at around 94p/£, Boparan's bonds reflect the expectation that the company will successfully refinance in Q4. Boparan has managed its profitability well this year (as in previous years when issuance was needed). With underlying profitability improving and customers incentivised to avoid disruption. The bond will return 9% (6 points of capital, 2.5%) over the next four months, but liquidity will be scarce as investors are very familiar with the history. The downside is at least 30 points if executing the new deal fails, but we do not expect this. With margins close to 6% we expect pressure from the supermarkets over the next 12 months and see a potential short opportunity after the new bonds are issued.

Cerba:

Upside: Both the senior secured notes and senior notes have been volatile since the Q2 2024 results (rallying on better than expected results and then giving up those gains with the headline around tariff cuts and lab strikes). The upside will be driven by accelerating growth in its core and specialty labs business, contract wins in its research division and cost cuts which will lead to deleveraging going forward.  The upside for the senior secured notes is ten points (with a price target of 95 or yield of 5%). The senior notes in the mid 60s have a mid-teens yield and priced in line with the European preferred equity or mezzanine debt market. The senior notes have an upside of twenty points (with a price target in the mid 80s or a yield of 9%).    

Downside: The downside will be driven by any delay in the growth in the core medical lab business, no contracts in the research division and no improvement in margins leading to increased cash burn. Therefore, the downside to the senior secured notes is ten points (75% with a yield in the low double digits) and for the senior notes is ten to fifteen points in an underperforming or stressed scenario with near zero recovery in a hard restructuring scenario. 

Clariane: The Unsecured bonds arguably trade wide at 8% for a theoretical operating Company leverage of 4.9x but the greater opportunity is in the busted convertibles, (Oceane 2027 and Perpetuals, with a call date of 2027), which trade at 11% and 14.5%, respectively.   Both of these bonds are pari-passu with the unsecured, and the RCF & Bank Debt, and with the financial restructuring behind us, unlikely to be primed in the short term. The upside for the convertibles is 4pts (on cost price of 35%) to get the bonds to trade 100bps back of the unsecured.  Note this is French pricing for convertibles, with a par value of 44.3%.  

The downside is operational, which will impact the whole structure.  Leverage is high at 4.9x and the proposed asset sales do not deleverage the OpCo business.  If occupancy rates reverse recent trends and stabilise at 90%, or worse case decline, Clariane will struggle to refinance its balance sheet in FY25/FY26.  In this scenario, yields on the unsecured will expand to c.10%, indicating a 6pts decline in the unsecured bonds, with the convertibles following suit.  However, this is mitigated slightly by the new equity raised in July 2024.  

CPI Property Group: Hybrids: We expect the 2025 Hybrid to be exchanged for a new 6% note offering 20 points of upside with a package worth 85c/€. Holders could receive 10c/€ in cash and a 6% new Perp. The new Perps trading at 75c/€ => a running yield of 12.3%, representing a 450bp pick up vs the Jan-31 SUNs. The downside coming from CPI becoming distressed; even with consolidated LTV <60%, the hybrids would fall at least 15 points to 50c/€. However, we consider distress to be a low risk.

There is no chance of fresh Hybrid issuance in the medium term; on reset dates, CPI will look to exchange the hybrids to reduce the rising coupons. The probability of further tender offers remains high given the planned asset sales CPI may look to acquire Hybrids as the lowest-price bonds. Given liquidity from asset sales and the continued stock buybacks, hybrid coupons will continue to be paid in cash. We expect an eventual 10 points of upside as the general environment improves for real estate, but this will not happen soon.

SUNS: The €400m Jan-28 bonds yield 8.5%. It isn’t compelling, but the bonds will benefit from rate falls in 2025.  There are 6 points of upside from a 100bp fall in rates. The longer-dated January 2030 SUN is priced at 74c/€ (YTW 8.2%) but does offer greater convexity with a coupon <2%.  The downside from another short seller report is under three points.

Consolidated Energy - For 85c/$, we would prefer the 5.6% 2028 SUNs as they will benefit both from spread compression on improved operational performance and the expected USD rate reductions into 2025. We see 10 points of upside with 100bps of rate cuts and 100bp of spread tightening. The company has postponed the refinance of the Natgasoline TLB until January due to a two-month outage in Q4. We also expect the $250m loan to Proman will be extended beyond December 2025. OCI (the 50% owner of the Natgasoline plant is selling its methanol assets to Methanex, and if CEF were to buy Methanex out, $600m of issuance would be needed. A purchase would be funded at the CEF level and could cause the SUNs to fall 10 points initially. However, CEF's preference will be to keep the existing arrangements in place.

Elior: Elior bonds trade at 88c/€ after a strong H2 performance. A covenant breach is now unlikely with the March 24 test loosened and our model showing compliance going forward. We expect the bonds to be refinanced in July 2025, on leverage of between 4.25x and 4.50x. The upside is 12 points + 3.75% in coupon for 18 months. However, the downside is material if there is a further resurgence in inflation and/or a significant recession in France. The bank facilities now mature at the same time as the bonds, which should keep management focused on getting the refinance done in good time.

Global Fashion Group

Upside:  The convertible bonds are trading in the mid 70s and have remained at this level due to lack of improvement in the company’s fundamentals offset by opportunitistic buybacks by the company in this price context.  The upside will be driven by accelerated growth in NMV and visibility for free cash flow generation. As we move closer to the bond put date, the company may opportunistically buyback more bonds at a higher price which may push the price higher. The upside is twenty-six points over twelve months (including a point and a quarter of coupon payments).      

Downside:  The bonds look to be covered by the cash balance of €304 million but this would likely be consumed by negative cash flow over the next two years and then by working capital outflows in an enforcement scenario. A return of the cash balance to convertible holders while holding on to a loss-making business is a best-case scenario however this is not guaranteed. The most likely path that management may take is a combination of buybacks at a discount to par, a partial paydown and elevation of the existing stub balance. While this keeps some cash inside the business which benefits shareholders, this may lead to recoveries that are below the current trading price.    

Upfield:

Upside:- The senior notes have rallied substantially into 2024 as the fundamental story of the Company continues to improve (organic growth, free cash flow generation and deleveraging). As we expect a refinancing of the notes in the next twelve months - there is another ten points of upside (coupon and capital appreciation). We remain constructive on the name given the defensive nature of the business, lower cost vs. substitutes of the product and good operational execution by management.

Downside:- We feel that downside is limited to five points to reach recent spreads of 11% again. The Company is in a defensive sector with free cash flow, price elasticity and positive organic growth which will continue into 2024.

Graanul

Upside:  The senior secured notes have increased slightly in the quarter to around 90 due to improving Q3 2024 results and contract wins. The upside will be driven by new contract sales of pellets at higher margins and working capital release which should lead to de-leveraging. Another positive catalyst could be a positive development around the refinancing. The upside is eighteen points over twelve months (including nearly eight points of coupon payments).      

Downside:   At the current trading levels, we are creating the valuation of the company at 5.3x which is lower than the M&A valuation at 7.9x but in the downturn could re-rate to 4.0x. Therefore we calculate a downside valuation of approx. 60c/€. This would be driven by a delay in the improvement in the de-stocking environment, a decline in demand and pricing for pellets, or potentially another spike in raw material prices - possibly tied to events surrounding Russia and the Ukraine. In addition, due to the loose nature of the documentation and the location of the bonds at a single Lux Holdco, shareholders hold some negotiating leverage that should see bondholders give up at least some value in return for a consensual process - should it come to that.  

Grand City Properties On the perpetuals, we see limited upside or downside apart from the macro picture.  The bonds have rallied significantly since the summer prompting our exit from the perpetuals in September.  

On the equity, the upside is a narrowing of the discount to book value, in line with its peers.  The upside is c.20% if the discount is similar to Vonovia, who in itself trades at a 20% discount to its book value.  Given the equity exposure, any movement in underlying rates will have a bigger impact on the equity, with a downside of 20-30% possible on a severe rates movement.  

Grifols: As a risk arb trade, under a change of control scenario, there are c.10pts of upside in the sub notes, with c. 8-10pts of downside.  The only senior Secured Notes trading at a substantial discount to par are the 2027 Notes, which have 8pts of upside, with c.4pts of downside to trade in line with the other pari-passu notes that trade above par. 

In the absence of a bid, the bonds trade at fair value, with seniors at 6.5% and subs 100bps back for an additional 1.5x of leverage. If the bid rumour dissipates, both bonds will trade down.  We see long-term value at current levels.  

Heimstaden:

Bostad Unsecured: 

We see limited upside in these bonds, with current yields inside 5%.   Bonds may tighten on the back of a large asset sale, but risks are skewed to the downside.  Without an asset sale, Investment Grade ratings will be difficult to maintain over the medium term, and we see a downside potential of ~5pts depending on maturities.  

Bostad Hybrids:

Similar to the Unsecured bonds, the perpetual bonds are priced to perfection.  We do expect an exchange but see minimal upside in this process.  Markets are expecting an asset sale to drive further returns, which is probably but not definitive over the next couple of quarters.  Upside on the perpetuals is the potential for a par refinancing with the Company making comments alluding to this possibility.  The downside of a rating downgrade could be as large as 20-30pts.    

AB Unsecured:

The AB structure relies on an asset sale and maintaining its investment-grade rating, combining to permit dividends to recommence.  Without the asset sale, there is no way for AB to refinance its bonds, which will result in the bonds dropping from the 90% range to a recovery level at least 20-30pts lower.  

AB Hybrids:

The Hybrids are a more leveraged instrument, displaying similar upside and downside to the AB unsecured.  

Iceland: Upside: YTM of 8-9%. The new bonds are call constraint. There is only convexity in the 2028 low coupon bonds. We remain comfortable with the name and could envisage the bonds trading in a 7-8% YTM range, giving 5pts of upside on the longer-dated bonds.

Downside: Limited on an idiosyncratic risk basis. Possibility for the bonds to widen to 10% yields, but with no numbers until July and the Company comfortably guiding £170m+ EBITDA (post leases) we don’t see much risk. A wider grocery price war is possible but there are no major signs from the larger retailers that this is likely.

KCA Deutag: Yield Play - Bonds are trading on top of their call price, so caution is required if buying above. We expect a refinancing imminently, but we have said that for a while. There is a further step down in the call protection in December but we don’t see the upside for the Company in waiting for that. The downside is limited given the restrictions on debt incurrence and current low leverage. The name is in limbo while we wait for a trade sale and/or listing.

Equity is very illiquid but it has value at the current indicated levels. However, it is unclear if the Company are seeking a listing in the Middle East or a trade sale, but all shareholders are conscious of the need to do a capital markets transaction in the short term. Performance is strong but the business has restructured twice in the last 10 years.

Morrisons: The SUNs trade at 72p/£ and yield 15.7%; the yield differential between the 2027 SSNs and 2029 SUNs is excessive, given the equity cushion behind the SUNs. We see eight points of upside in the next twelve months as EBITDA and Operating cash flow rise. The downside is five points if market share losses continue without slowing. Investment return over the next twelve months is around 20% (capital gain 8 points and 6.75 coupon). Morrisons has continued to direct cost-cutting to price support, so the margin improvement is taking longer than we initially expected. The sale of the petrol forecourt business has reduced leverage to <6.0x. Morrisons will look to refinance the Parent Finco 2029 SUNs on November 27, along with the SSNs. The £1.9bn net proceeds of the Forecourt were used to reduce bank and bond debt.

Ocado The 0.750% January 2027 Converts yield 10% priced at 81p/£; the low coupon means an early call by Ocado is unlikely. The expected return on the investment is 13% over the next 12 months; the upside is 10 points, and the downside is around 5 points if rates remain high and the CFC rollout slows further. We value the Retail business at 32p/£ and the Technology business at 69c/£; making fair value for the bonds par. The equity market is more bullish, and Ocado’s equity capitalisation exceeds £2.8bn, providing a significant cushion to credit investors. We currently model Ocado as being funded, but if the CFC rollout slows further, the company may issue £300m of equity.  Investors are becoming more focused on international growth over the UK Retail business.

OHLA: As 93% of bondholders accepted the restructuring proposals before the deadline, the company will restructure its bonds via an exchange offer under Spanish law. The current bond price is 96c/€, which includes 2.5% points of consent fees and OID => a normalised price of 93.5c/€. The upside is 5 points if the bonds trade at 12.5%, and the downside is 3 points if the bonds trade out to yield 15%. If the transaction were to fall apart, the downside would be 25 points, but we see this as unlikely. The equity issue is targeted at €150m, with €101m pledged. To the extent the €50m gap is filled either through equity or a convertible, the cash portion redemption of the bonds will rise from €91m to a maximum of €140m, but we are discounting this for now, but it would represent another two points of upside.

Pfleiderer: Upside:  The bonds should trade c.10% yield, which implies a par price, or fourteen further pts of upside by Dec 2025. . The senior secured notes have rallied to 85 from the mid 70s due to positive news on the A&E and the equity injection from Strategic Value Partners during the summer. The upside will be driven by the business plan, focus on growing the top-line by moving into adjacent markets and a tailwind from a recovery in renovation spending in their home markets. A combination of the above should also help in free cash flow generation, de-leveraging and par refinancing in three to four years.          

Downside:  At the current trading levels of 85% and post announcement of the A&E proposal, we estimate the downside to be 7pts (at 78% - YTM c.17%) or a creation multiple of 6.1x. on any delay in recovery in the sector. We don’t see further downside in the short-term due to the high liquidity in the company and the recent show of support in the form of an equity injection from SVP.

Punch: Upside is three points and a coupon from here as the bonds look ready to refinance when management decide the most attractive time has come. The bonds step down to a par call at the end of June when they also become current.
We don’t see much downside until then. While we are concerned that performance could drop in H125 on weak UK consumer confidence and perhaps a re-emergence of inflation, we would expect the company to refinance before any of that is reported.  

Rekeep: Rekeep bonds have traded up reducing the pull to par availabl on this refinancing trade. The Company provided no update on potential asset sales to aid the refinancing.  Yield to maturity is c.10%, which improves to 13% with early take-out in May 2025.  The RCF maturity in August should ensure an early take-out.  

The downside is low due to limited debt ahead of the bonds, however, in the absence of an asset sale, a straight refinancing would be difficult.  Recovery should be in the 80’s, based on a 10% coupon, with bear case downside in the mid-70s.  

Stonegate:

Freshly restructured, the company now has a 4.5-year runway to execute its asset management strategy. The SSNs are therefore a 10% yield play on the bet that nothing negatively impacts the pub business in that time, because if it does, we see the 2nd liens as toast and the 1LNs taking over. Apollo may then also disappear with Platinum in the bag. But that is a tail risk at the moment. 

The release of any disappointing news following the recent transaction could provide a better entry point for opportunistic creditors - possibly in the high 90s.

The 2LNs are not currently covered in our opinion and still require either help from TDR or much improved results. That improvement looks like it will be forthcoming, but that will still take some time. TDR look unlikely to be losing this company now to the 2LNs. Their downside comes more from an aggressive/coercive A&E offer from Stonegate/TDR and that seems somewhat uncalled for now.

Tele Columbus : TC completed its restructuring and has secured €300m in fresh equity from Morgan Stanley. The 10% (PIK) 2029 bonds are trading at 69c/€ a YTW of 20%. We don’t see a near-term catalyst for the bonds to rally as the fibre build-out is still at an early stage, and there are significant challenges in the CATV business over the next two quarters. TC has ample liquidity in the medium term to try and execute its business plan. The downside is around five points back to where they traded before the restructuring if operations do not show a benefit from the capex spend or if TV subscriber losses are higher than expected.

Transcom

Upside: Trading around the senior secured notes have been volatile since the start of 2024 with the price falling from par to the mid 60s before rallying to the 70 post the Q3 2024 earnings call. The upside will be driven by the ability of management to meet their guidance by demonstrating accelerating growth in their business along with margin and cashflow improvements over the subsequent twelve months. The upside is twenty three points over twelve months (including nearly nine points of coupon payments) for the senior secured notes which we have calculated at Sarria's 2025 projected pre-IFRS 16 EBITDA projection and a multiple of under 4x (which is below the average sector comps of 5x) 

Downside:   The downside to the senior secured notes is seventeen points which we calculate as a decline of 30% of our projected 2025 free cash flow before debt service, interest coverage ratio of 1.5x and a “new" bond with a coupon of 10%.

Viridien (CGG): We see potential upside for the € notes as the more robust operating environment flows through to the bottom line. A refinance in 2025/26 will also help pull the bonds towards par. The €7.75% are trading at 93.75 /EUR. The notes traded above par before the Ukraine conflict, the ratings of B3/B- will assist in opening up the CLO bid for new paper. The downside would be five points if the oil price were to fall below $80bbl for a protracted period. Oil price forecasts are for a price of €93bbl in 2024, and our analysis still points to continued capex boosts from new E&P as part of energy security plans which will benefit CGG.

Vivion: Vivion debt is a macro play on the recovery in RE valuations, which in turn are being driven by expected falls in interest rates. The 2028 bonds yield c10% + 1.25% PIK (89c/€). The upside is limited as the ECB has signalled further cuts (post the 25bp cut made in June 24) will be slow due to inflation concerns. The downside is five points if inflation remains high and rates rise. The upside is around five points, as the expected ECB cuts (100bps+) happen in 2025. Vivion has €170m in bond maturities in August 2024, but given the net assets, default would be irrational. Vivion is seeking loans secured on its UK hotel assets. LTV on the UK assets would still be <20%. Liquidity is hard to source in the 2028 or 2029 notes, so putting on a trade-in size is problematic. The next catalyst will be by July when Vivion announces how it has secured the cash at the Vivion Investments level.

VMEDO2: Catalysts for tightening for the SSNs are limited in the near term. The price rises have not led to a significant fall in subscribers, and a widening in bond spreads has not happened. The SUNs trade only about 100bp wide of the SSNs, so are not attractive either. Our analysis has EV covering the debt stack. As a place to park money, a yield of 9% for 5-year SSNs is not a bad return vs. bank deposits. Cable bonds have become such a staple investment for European investors we would not expect VMED to struggle to issue either bank or bond debt (a recent 5-year TL was upsized from £500m to £600m). VMED has £1.7bn of bank debt maturing in January 2027 with £675m of bonds in April 2027.

Accentro : Accentro has worked with the Ad Hoc bondholder group and is finally pursuing a proper restructuring that will leave creditors in control (89.9%) of the equity in return for haircuts (44% in the case of the 2028 SUNs). A rejection of the plan would lead to insolvency, which would be value-destructive as only 1/3rd of the assets hang under the double LuxCo structure. The bonds are trading at 38c/€, and we see about 5c/€ of upside initially, but if the plan were to fail, the downside would be at least 15 points. The fair value of the assets is 81c/€, and once the plan is in place creditors should be in charge by the end of 2024.

Adler: Going forward, the 1L New Money is sitting at a stable 60% LTV on our valuation of the yielding assets alone. The 12.5% PIK instrument still yields over 10% to maturity. Its risk comes from a partial early pay-down through a sale of Brack (probably near term) and any development assets (mostly medium term), as well as any refinancing attempt by the company, although we don’t see Adler as having the cashflow to do so.

Altice Intl.: It is impossible to separate Altice International from its more troubled sibling, Altice SFR, which results in depressed prices for the Altice International structure.  The level of fear is highlighted by the fact the 4-month, fully cash-collateralised, near-term bonds still trade at 7%.  Everything else is priced back of this. 

SFR Altice France: Bluntly, we view it as un-investible at the moment.  The cat can be made for the seniors, at c. 70%, on the back of sum-of-the-part estimations and the fact that they are trading at “recovery” values.  However, we are taking a more cautious view, especially given the poor performance, and although recovery may be in the 70’s, this is very much an upside scenario.  The downside has increased, possibly even 20pts, as maturity extensions and partial debt forgiveness appear to be already seen as the base case scenario.  

The subs remain a binary trade.  The downside is zero, with sub-bond holders having limited control in any proceedings.  Upside could be 10-20pts, but very much at the discretion of the Company via a generous tender offer or a pact between Senior and Subordinated bondholders.

Ardagh: We see up to 20 points of downside for the Ardagh Group SUNs and a near wipe-out for the ARD Finance PIK toggles, triggered by the restructuring proposal will likely be made after the summer. The risk to the position is an unexpectedly generous offer to the SUNs which could see the bonds rally 10 points (in line with where they traded before the appointment of advisors).

The Ardagh Metal Packaging (AMPBEV) SUNs have recently widened on the back of the turmoil at Ardagh Group, but we see AMPBEV leverage falling in 2024 and 2024, and see 8 points of upside in the bonds in the next six months with the potential for 16 points if ARD disposes of its 75% stake in AMPBEV, triggering a Change of Control (we see this as unlikely in the near term). The downside for the AMPBEV SUNs is five points if the US recovery is slower than expected. There is no cross-default language between Ardagh Group and AMPBEV.

Atos: We maintain the view that without the ability to put in fresh equity, Atos is un-investible. The various opening plans from creditors, EPEI and OenPoint all envisage significant dilution. We remain vigilant to the risk that creditors may not be in such a strong position and feel the creditor proposal to be the weakest of all three. Regardless, we don’t see either proposal being successful, but likely in the coming days we will see a merging of the plans as groups team up together and we envisage higher debt forgiveness and larger equity injection, especially if the Company remains as a whole. No urgency in investing at this point.

Branicks: We see fair value for the Branicks SUNs as >90c/€. Branicks still needs to amend and extend its Sep-2026 notes along with €200m of Promissory Notes (Due in Jun 25). The SUN's trade at 63c/€, which is well below our updated fair value. We see 30 points of upside and 10 of downside if Branicks sees creditor pushback on maturity extensions. Branicks or Creditors could need a StaRug procedure to bring everyone on board, and this is likely to begin in Q125. Creditors are incentivised to support a consensual process as a liquidation would benefit nobody. We cannot rule out a liquidation but see it as unlikely. We expect the Amend and Extend operations will offer bondholders (and Promissory note holders) part redemption in return for a three-year extension.

Emeria: The SUNs and SSNs trade around 10% and 8.5% YTM respectively, providing holders with upside of up to 30 and 20 points if shareholders come with a generous cash package to address liquidity early next year.

On the downside, the SUN’s have no protection and no way of defending themselves in a French process - should it come to that. The SSNs are pari passu with most of the sr. sec. debt and therefore form the fulcrum. We see the SSNs EV covered, but the need to provide fresh cash should see them drop 20 and 30 points respectively to the 60s or lower, before recovering from there.

We consider the upside case far more likely, but in the short term think the company will be reporting a tough Q2 first, which should send the bonds lower by some seven points in September to amywhere between a 15% yield and above mentioned recovery.

Eutelsat: Upside: The senior notes have declined albeit slowly (depending on the coupon) at yield in high single digits.  Any appreciation in the senior notes will be driven by positive revenue growth as growth rates for the connectivity and government services accelerates from more contract wins which offsets the declines from the video segment whose decline moderates. Liquidity injections from the closing of the sale & leaseback transaction with EQT or a rights issue could be another catalyst for the upside. The upside on the 2.25% senior notes due 2027 is twelve points over a twelve-month period. The upside on the 1.5% senior notes due 2028 is twenty points over a twelve-month period. 

Downside:   At the current trading levels, we are creating the valuation of the company at 2.7x which is close to the low end of sector comps. The downside to all the senior notes (2027, 2028, 2029) is twenty points including coupon which prices the notes in the mid double digit yield which is the right return profile given the risks associated with the business.  This would be driven by any delay in the growth in connectivity revenues, accelerating declines in the video segment and cost-overruns in launching new LEO satellites which could lead to higher than expected capex and cash burn. Also, the longer the bonds have to wait for a rights issue, the further they will fall.  

HSE24 : HSE is headed for a restructuring. The bonds are trading at around 42c/€ due to a balance sheet that will be c8x levered by the end of 2024. However, HSE24 generates cash and can cover its coupon, and we believe that the business should be worth 57c/€ with a downside of 20c/€. Given HSE generates free cash we do not see the downside as likely, but the catalyst for a restructuring and the release of value to creditors is October 2026, when the SSNs mature.

Intrum: Intrum is about to enter a prepackaged CH11 / Swedish company reorganisation process, as a result of which bondholders will receive a minor cash element, some 90c/€ new bonds with 2 years extension and higher coupons, and 10% of the equity. The resulting balance sheet still looks overleveraged, so the upside on the new bonds is not obviously par. We will look at them as carrying approx. a 10% running yield.

On the downside, we see another restructuring in two years’ time, where the bonds could drop yet another 20c/€ (made up for with interest payments between now and then, so the downside is approx. the cost of capital and perhaps a lost coupon).

Kem One: The upside is c.10-15pts if Apollo supports the business via equity injection.  Current market prices indicate the business will remain cashflow negative over the coming quarters, which requires fresh cash.  More likely, the cash injection will be debt-financed.  We see the potential for Apollo to acquire the RCF and provide fresh capital in this context.  Although this would be layering, it would be seen as positive for bondholders, providing sufficient liquidity for Kem One to wait for higher economic activity.   The upside under this scenario will be less, c. 5pts.  

Given the negative EBITDA, the bonds arguably should be in the 50’s.   There is a belief that Apollo is supporting bond prices but another poor quarter with no support from Apollo could see these bonds trade down 20-30pts.  Apollo also has the option of taking an aggressive stance in potential negotiations with bondholders, although the value does appear to break in the bonds, but any floor would be well below trading levels today.

Klockner Pentaplast

Upside:  There is six points of upside plus coupon for the quarter as the senior secured notes due 2026 are trading in the mid 90s and have rallied this year on news on SVP’s equity injection in Pfleiderer (unrelated to Klockner Pentaplast) and better than expected guidance on adjusted EBITDA for the second half of 2024. KP has Q4 2024 and Q1 2025 to demonstrate an improvement in credit KPIs driven by recovery in the pharma packaging segment and through self-help measures in the food packaging segment which is embedded in its guidance. This would be helpful in a refinancing of the bonds and par recovery. This represents six points of upside plus coupon for the quarter. 

Downside:-  There is twenty five points of downside to the senior secured notes if the refinancing process becomes a coercive debt exchange, there is a delay in the improvement in the de-stocking environment, cost cutting measures by management, cash burn or any hostile action taken by the shareholder as part of refinancing discussions with existing creditors. We calculate the downside as the difference between the existing valuation multiple of 7.6x and trough multiple times our projected trough EBITDA divided by the face value of the bonds. At the current trading levels, we are creating the valuation of the company at 7.6x which does not reflect the downside scenario as we think a fair multiple is 7.0x which is reflective of the under performance of the company.  

Lowell: In the low 70s, the bonds are value-covered by Lowell’s book, which lends significant downside protection. However, the company will have to restructure its balance sheet and over the next 12 months, there will likely be a series of catalysts that should put further pressure on the paper.

On the upside, we see little value above the book due to the small size of the 3PC business. Upside to the bonds or the business as a whole would therefore have to come from rate cuts. Those look likely to come but are probably better played in a name with less fur.

Matalan: While the Priority Notes enjoy certain temporal seniority over the SSNs, they rank pari passu in an enforcement scenario and until then are cash-pay-only, unlike the PIK-Toggle SSNs. This explains their slightly tighter price. 

Away from that the bonds have a fair chance of a refinancing in 25/26, which gives each some 20 and 15 points of upside, plus a ca. 10% coupon.

On the donwside, we are seeing the bonds trade into the 50s if Matalan does not recover. Here it is worth noting that the structure, including the equity, is largely X-held by those funds who drove the 21/22 restructuring.

Maxeda: Around 78 c/€, the SSNs yield a handsome c. 20%+ to the Mar 26 maturity. However, this yield is becoming less and less relevant because the company is increasingly unable to demonstrate that it can generate the sufficient cash flow to fund the interest of a new bond at maturity. Although consumer confidence in the NL and BE has been deteriorating at a slower pace in 2024, sentiment remains negative. We expect EBITDA to fall by €10m in FY24/25 to €71m which would cover the bonds in the low 70s on a 5x multiple. Realistically, the bonds should overshoot on the downside  when heading into a restructuring.

The unlikely upside scenario is based off management’s ability to achieve price increases this year and maintain margins at c. 37%. This now becomes a top line story where performance would need to emulate that of FY22/23. To do so, Maxeda would need to generate revenues of over €1,500m (a YoY increase of €100m) and EBITDA in excess of €100m. Given current trends, we view this as highly unlikely.

Oriflame: Even as the top line seems to be bottoming out this year, Oriflame will have to restructure. Documentation is weak but foresees a Distressed Sale, which should become relevant in H224. The company has no debt-carrying capacity and would benefit from fresh cash. The unlikely upside case is that the Jochnicks hand over the keys - with the Russian business included. More likely is that the Russian business will be sold - possibly to someone close to the shareholder - to fund the last coupon payment in May 2024. In that case, we see value of around 20-30 cents. The downside is a fight over control and further asset sales.

SBB: We don’t see much for bondholders in the latest liability management exercise. 

The SUNs to be issued to Hybrid holders represent seven points of upside for the Hybrid holders, but at a maximum of €100m-€150m, liquidity will be limited. The new SUNs should trade at 80c/€ (in line with the existing October 2029 SUN. (Hybrid price 35c/€ 15% (tender size) @80c/€) + (35c/€ 85%) = 41.75c/€. The Hybrids haven’t moved in price since the exercise was announced. The pushback from investors this time will limit SBB’s opportunities to repeat this trick.

- SBB is also tendering (via a Dutch auction) for its 2025 SUNs. SBB has the cash to meet its SEK3.2bn 2025 maturities, with 75% of those maturities in January/April 2025. Even If SBB lost the interest coverage ratio (ICR) case, the January maturities would have occurred before any ruling. Furthermore, we see the risk of an adverse ruling as small. We do not see investors tendering bonds at attractive discounts.

- The longer-dated SUNs are also subject to an Exchange offer, but the coupon enhancement is minimal, and the maturity reduction is too small to entice investors. We expect little participation from the 2026 – 2029 SUNs. The bonds trade between 69c/€ and 79c/€. Current liquidity will not stretch far enough to redeem these bonds, and with YTW >10.5%, they are still some distance from being re-financeable in the capital markets. The fair value for these bonds is around 65c/€, so there are 5-10 points of downside and little upside.  

Default or restructuring is not an imminent risk as SBB has liquidity to fund itself through 2027 if it can get its banks to roll debt. SBB has secured a new Scandi bank facility of SEK2.5bn (currently undrawn), but we have not seen details of pricing yet

The next catalyst is the results of the Tender offer on 18/19 December.

Selecta: Following an exceptionally disappointing quarter and news that the company has hired advisors, we conclude that the A&E we were previously envisioning will likely give way to a full-blown restructuring. 

We see the SSNs as unimpaired - possibly receiving 5% in cash to extend 95% of their exposure. The 2LNs should receive some 60c/€ in new bonds, a good 10% in cash and some 30c/€ worth of new equity. There should further be an opportunity across classes to participate in the fresh cash that is funding the above pay-downs and is receiving primarily equity and, together with any other equity, receiving control in return.

Upside comes from a renewed injection by shareholders KKR, whereas downside should be mostly driven by inter-creditor negotiations and any fundamental weakening of a credit that is set to suffer from low and falling consumer confidence on the continent.

Standard Profil:

Upside: Our DCF results in an EV of €300-350m, which theoretically results in a par recovery.  However, with fresh capital required, the majority of value could leak to new money providers.  The realistic upside is 30-40 points, based on the debt capacity of Standard Profil based on FY25 figures, which is predicated on new money injection.  The timeframe for any positive recovery will be long, as the value will only accrue once the OEM orders are converted into cash, which is late FY25/FY26.  

Downside: Given the lack of senior debt, and the strength of the order book, we see limited downside at the current prices.  Bondholders are in a strong position to provide the additional liquidity and we see 10pts max of downside from current levels.  

Thames Water:

Currently trading in the 70s, the Class A bonds are priced to yield 15% over the next two years when taken together with the pro rata New Money investment they give allow. We calculate this on the premise that in 18 month’s time there will be a second restructuring. The above Yield is based on Ofwat requiring £20.7bn Totex and water prices rising 50%. There is significant uncertainty around these figures.

On the downside, we don’t expect the government to mis-handle the situation to a point where it discurages future investors from financing UK utilities, but a more politically sensitive price rise of perhaps 35% - without any concession on Totex requirements - would drop the value of the Class A bonds to near zero.

As regards the Class B bonds, they are not a fundamental investment, but a bet on (considerable) nuisance value. The B bonds are likely out of the money, so they could double on a successful negotiation or get wiped out.

Tullow: Strange scenario that the Senior Secured (15%) trade wide to the unsecured (12%) on the back of the recent new facility from Glencore to take the subs out.

Upside for the Unsecured is an early takeout, although participation in the previous tender was underwhelming. Par in March 2025 is the most likely outcome. Downside centres on oil price collapse and/or production issues.

The Senior Secured are more exposed to operational issues, given their May 2026 maturity, albeit the Company has deleveraged by operational cashflow and by sub-par tenders. 15% is attractive yield for Senior Secured Notes, and we see 7-8pts of upside for this bond to trade to 10%.

Similar downside risks as for the Unsecured, with additional exposure to the outcome of tax arbitration cases in Ghana. The Senior Secured Bonds do have some protection given their senior status, but the revolver will likely be drawn further and dilute recoveries. Mostly in the hands of original holders, the bonds should drop substantially into such a scenario before they recover.

Victoria Plc Both bonds are pari-passu but with 18 months differential in maturity dates, we have separated them out.  

2026 Bonds - Trading at 90%, with a YTM of 10%, we see limited upside in the name.  The bonds have rallied on the back of the potential for a senior secured bond refinancing these bonds and layering the 2028 bonds.  The upside is an early call on the back of refinancing but that is not likely until Summer 2025.  Yield to August 2025 is 18%. The downside is from continued weak demand, where the bonds should trade to 15-20% yield.  Bond drop off 10pts equals 18% YTM.  

2028 Bonds -  We don’t see any short-term upside beyond the carry, with any improved guidance likely to have a muted impact.  The downside, if layered, would be 20 points, especially if accompanied by continued weakness.