AA timeframe - Scheme Court meeting 14th January

All,

Please find our analysis here.

With the Scheme Meeting scheduled for next week (14th January) all eyes are currently focused on two of the three main shareholders (Davidson Kempner have already given "irrevocable" in favour of the deal). . Albert Bridge Capital (ABC) have not indicated their support for the deal, with 19.5% of the shares, nor have Cleveland Capital with 10.5%. These two shareholders combined are capable of blocking the deal. ABC have converted their equity swaps into outright share ownership with Cleveland holding the majority via equity swaps.

The bidco, (TowerBrook and Warburg Pincus) have released the Commitment letters on Christmas Eve, outlining, the arrangements with various banks for the Senior Term, Working Capital, Liquidity and High Yield Bridge Facilities, including the fees payable.

At the current price, 34p, and an expected close 14 days after Scheme has been sanctioned, i.e early February, the 2.9% Gross Return is very attractive for risk arb spreads and points to some uncertainty to the bid. The current 97.5-98.5% indicative bid-offer on the bonds, also indicates some uncertainty with taking out of the HY bonds at par expected soon after Scheme receives court approval. The corresponding HY underwriting agreements are publicly available on the AA website.

Despite the current uncertainty, we fully expect the Scheme to receive Court approval and the takeover to proceed.

Happy to discuss.

Tomás

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E: tmannion@sarria.co.uk
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