Accentro - Jam tomorrow - or maybe later...
All,
Please find our updated analysis here.
As we anticipated, Accentro’s amend and extend plan has fallen apart within a year. The company did not like the prices offered for its assets and is now asking bondholders to defer the promised repayments until prices improve. There is no carrot for bondholders this time. We have no faith that management will be any more willing to sell assets at market prices next year and expect another amend and extend operation to be needed. If bondholders reject this latest plan, the €20m cash injection will fall away, and Accentro will not have sufficient cash to avoid a restructuring. Bondholders would gain at best partial control of the business and could gain only limited control of the assets
Investment Rationale:
- At 47c/€, the SSNs still look expensive to us. The initial amend and extend failed, and we do not see this one being more successful.
- At present, there is minimal upside for the bonds. Nothing will change in Accentro's attitude towards asset sales, and we expect another iteration within 12 months.
- The downside is still 15 points. There has been minimal progress on the sale of portfolios, and we still do not know whether there is any value in the East German part of the investment portfolio.
- Potential asset buyers in 2024 will be just as aware of bond redemptions in the next year and will continue to price their bids accordingly.
- Whilst demand for housing, particularly in Berlin, is strong, Accentro cannot stand still and wait for the good times to roll.
- We will monitor progress, and if asset sales emerge, we will review our attitude.
Bondholders asked to take the strain:
- The €20m of capital promised will provide some liquidity, but bondholders will primarily pay for the equity option. The jam Accentro is offering next year is the same jam they were supposed to give bondholders today
- Management claims they are perceived as a forced seller and suffer lowball bids, but this will not change under the new proposal.
- The €40m due in December 2024 will be delayed by 12 months, and the €65m due in December 2025 moves by six months to June 2025. The market may improve, but the perception of Accentro as a distressed seller will not. We expect yet another roll of the dice from Accentro next year.
- The coupon delay from (February 2024 to December 2024) is particularly raw. The fact that management could not even raise enough cash from sales to keep the bonds current is very negative for creditors.
- Bondholders have little incentive to agree to this proposal beyond inertia. The structure will likely have more transparency with the new majority shareholder. The chief beneficiary is the equity holders with a cheap option on the potential value of the assets.
Bondholder options are limited.
- Accentro has indicated that it has support from some bondholders. They will likely be the same bondholders who supported the original amend and extend. The bondholders will not have changed much since February 2023 so a dissident bondholder group with a 25% blocking stake is unlikely to emerge.
- Only a minority of the assets are covered by the double lux structure. Bondholders will not be able to take control of the business even if there is a default.
- The required majority is 75% of those voting.
- The voting on the proposal will be between 28-30 November, with the results announced in Early December. The statutory contestation period will end in early January.
Aengus
T: +44 203 744 7055