AA - finally arrived at destination.

All,

Please refer to our unchanged analysis here

The AA announced this morning a formal offer for all of the shares of the AA Plc, at 35p a share. Additionally, and more important for our position, the B2 notes are to be redeemed at or close to Effective Date of the scheme. This confirms our thesis all along that there was equity value beneath the B2 notes and a bid would materialise. Risk is existing shareholders do not accept the offer (75%). This risk is low given the overall leverage of the Company and apart from Albert Bridge, lack of institutional shareholders on the register.

The bid: 35p:The bidco, (TowerBrook and Warburg Pincus) have received support from Directors and Davidson Kempner’s holdings, totalling 15.5% of the equity (Irrevocable undertakings from the Directors and DK’s holdings directly, 3.4% combined, and non-binding letter of intent on the 12.1% stake DK hold via CfD).

BidCo injection of cash: Bidco is going to inject £378m of cash into the new structure. £261m to partially fund the take-out into full of the B2 notes, £100m for the partial refinancing of the A5 notes and balance for general corporate purposes and refinancing costs.

Class B2 Notes: Following completion of the deal, they will be taken out in full via cash injection of £261m and either a new bond issue or bridging facility. The Company will issue £280m of new notes (Class B3 notes) to be held in escrow until Scheme becomes effective) and in conjunction with the cash injection will take out the B2 notes. If the Company are unable to raise the new notes, the Bidco intends to use a £280m bridge facility instead along with the cash injection to redeem the B2 Notes. The remaining cash injection of £100m into the Company will follow between Effective Date and January 2022, to help redeem the £372m Class A5 notes.

Equity option: The bidco is allowing current equity holders to participate in the new Bidco for up to 16% of the new entity, but would have to inject proportionally the new cash requirement. However, the new shares will remain unlisted, limited voting rights and lock-up agreement for a period of 5 years.

Happy to discuss.

Tomás
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