Aggregate - Developments

All,

Please find our updated analysis of Aggregate here.

We’ve only had sporadic news from Aggregate recently and the last set of financials dates back to June 2022. But nonetheless, a lot has happened at the developer and because we are concerned we may not be receiving much before bondholders might be asked for a waiver, we thought it a good time to piece together - as painful as it was - what we think has survived in the structure. Like the company itself, our analysis has become simpler and as a result we feel we see more clearly.

Investment Rationale:

- We remain long the Holdco bonds for 2% of NAV. We had originally bought the position in 2021 - before inflation was a thing - and on the assumption that Adler would stabilise. We have since sold down with the unfolding of events, but are retaining this small position - also at this juncture.

- Somewhat unique to developers is the fact that neither cashflow, nor assets tell the full credit story. Operating CF at Agghol is minimal, but the company builds its assets. So we think that between the surviving Track ensemble of QH and the Fürst, Aggregate can still create some €250m of value each over the next year, which must however be offset with additional leverage of a combined €375m. 

- Equally important is the valuation of the properties - now and then. If we apply a 20% haircut to balance sheet figures (certainly not unheard of in this market) then recovery on the bonds shrinks to a shocking 10%. If we don’t it’s in the 60s and if Aggregate create above mentioned value, then - well - it’ll be more.

Events ahead:

- We think Aggregate will have to write off their €1.3bn goodwill and approach bondholders for a waiver of the 65% LTV covenant. However, we have not gone so far as to analyse the precise language of that covenant and therefore ascertain if there could be any loophole that prevents Aggregate from breaching it. Given the “sale” (for one Euro) occurred in Q1, we are also not sure of the exact timing when Aggregate would have to seek the waiver, but imagine it to be around Q4 when the half-year numbers are due.

- Incidentally, this is also the time of the coupon (November). 

- Bondholders are generally best off keeping quiet and waiving what they can, as otherwise, they might have to find another €500m if any x-default destabilises the two big remaining assets.  

- We continue to see the bonds very weekly positioned and doubt they even have the strength at the moment to command a better structure in return for such waivers. 

- In summary, however, Aggregate are strong executors and have a proven track record of delivering properties. In time therefore - provided the 10-project portfolio debt can be restructured or another pipeline can be found (Consus?) we are sure Aggregate can develop the value it needs to address the bonds. 

VIC:

- The VIC is gone. Aggregate have been unable to hold on to the asset and VIC convertible bondholders have finally taken over the three assets last month. 

- We don’t think that saving the Portuguese operation at all costs would have been the right thing to do for Aggregate - if it could have. 

- In summary, therefore, painful as it has been, we think it has helped the company simplify its structure and - importantly - story.

- In the process, Aggregate have managed to extricate themselves from all contingent liabilities in connection with VIC, which in our book is already a good result.

QH:

- Only the Track asset remains on Aggregate’s books, although it is still under contract to finish certain of the other ensembles and probably has had to give performance guarantees in return.

- Track alone appears to be worth approx. €1bn today, which we think could increase to €1.25bn by the end of the year (all rates held equal). 

- The asset seems to be approx. 50% progressed and is scheduled to be finished by the end of this year.

Fürst:

- When we visited the Aggregate sites in Summer 2022, the Fürst was standing eerily still. But construction has picked up and we have no reason to doubt that this project will also fulfil its potential (again all rates held equal).

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk