Atalian – Eventually - Positioning
All,
Find our updated analysis, here.
We have decided to take a position in the Atalian 2024 bonds. We had a spirited conversation after we published our email on the restructuring proposal. We are convinced that our thesis will play out, but also feel that the downside is sufficiently squared off.
Investment considerations:
- We are taking a long position of 4% in the 2024 bonds at 79.25 and we will be consenting to the bond exchange proposal. We expect the bond exchange to proceed and to earn a return of 14% within 2 months.
- The 2025 bonds are trading at 79.25c/€ whereas we value the package at around 90c/€. There is 11 points of upside. If the deal falls away the 2025’s could be repaid at par with the 2024’s left outstanding. The downside comes from the possibility of Atalian entering a Safeguard process if the Exchange fails, which would see the bonds trade down significantly more, although we would expect them to recover.
- Our thesis is that the exchange consent reaches 67% but not 90%, so the company will proceed via an accelerated safeguard process.
- The 2025 bonds trade three points cheaper than the 2024 bonds. The price reflects the slightly lower 2025 value of the package in the exchange offer. In the event the bond exchange fails, Atalian could repay the 2024s to buy another year to force the 2025s to an agreement. We see this is possible but unlikely, but the risk will weigh on the 2025s.
- The Exchange offer is worth c90c/€ for noteholders, whereas taking control of the business is worth approx. the same amount. The difference is not worth the hassle unless you believe there is a significant upside to the company’s projections. The downside for holdouts comes if the deal is approved. These bondholders would be forced into the exchange offer and lose a share of the €100m redemption.
- On our modelling, we see the 2024 – 2027 guidance as achievable and mostly use these figures in our updated model.
I look forward to discussing this with you all.
Regards,
Aengus
T: +44 203 744 7055