Adler, Aggregate, Casino, Naviera - Positioning
All,
Please find our existing analyses here: Adler, Aggregate, Casino and Naviera Armas.
It’s time we bring out our dead. To fund new positions, such as Selecta yesterday (see here), we have been clearing out a few positions to make way for new ones, such as Selecta yesterday. Some have performed decently, some less so. Some we have been meaning to sell for a while, but because they are not very liquid anymore, we have given it more time to approximate the reality of selling illiquid instruments. We are dropping them at a fair discount to the quotes that are still out there. Selling the wide names here will hurt P&L as we mark to “mid”, but in this environment, we feel it is worth raising the liquidity and moving on. In fact, we are late on all four positions below:
Adler:
- We will be holding on to the New Money notes and the CVR/shares, but have sold the piece in the middle - the AGPS 26s. While economically similar to shares at Vonovia or LEG, they are less leveraged and provide the same upside. But because of a likely second and perhaps third restructuring, they will not be the first instruments to catch a bid when the German RE market turns around and ultimately all these instruments are bets on that development.
- Going into the restructuring we bought the bonds at 45 c/€ and have received significant fees and bits and pieces for it, but the position has lost money. Some of the value has transferred to the New Money we have participated in, but we see that instrument as undervalued today. We have booked 32c/€.
Aggregate:
- This name has been an unmitigated disaster and we have been looking to find any indication of liquidity in the market for some time. We assume that after a long time looking and a discount of 50% to the stale bids we see indicated we are finding a buyer to put an end to this story.
- In 2021, our thesis was constructed around a strong operator with - some - great assets being able to overcome the reputational damage associated with its proximity to Adler. But the inflationary tide has turned against the sector and we have simply failed to recognise that in time. Bonds at any time traded so weakly that an exit did not seem worthwhile when in hindsight we should have been more careful. We have a rule: not to swim against the stream. But we didn’t follow it on this occasion.
- Aggregate have stopped paying salaries and executive-level CVs are circulating the city. We are ready to sell for scrap value as there won’t be a bid waiting for us. We have booked 5 cents, but let us know if you feel we should revise that downwards.
Casino:
- In the end we will have lost some money on Casino. Not much, but we closed out our short too early this year and the subsequent bet on the bonds being able to organise fell apart with the disastrous operating performance the company posted in May.
- We have exited these bonds for scrap value.
Naviera Armas:
- We still believe in this name, even as it has suffered more than we had expected. However, the name has gone illiquid, being dominated by only a hand full of players. So in some conflict between our business and that of an investor, there is little value in us continuing coverage of this name. Like any fund has self-imposed limits on risk and investment philosophy, sticking to reasonably liquid situations is one of ours (read across to Aggregate).
- We have booked 53c/€ on the bond and should receive effectively 21c/€ worth for our various equity pieces (in terms of bond face value).
Here to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk