Atalian – Phoney war
All,
Please find our unchanged analysis here. We are reserving the update for next month.
In September, Atalian will present its strategic plan aimed to pacify bondholders, whilst leaving the equity in charge of the business. Meanwhile, we are awaiting answers from IR, which have been delayed by the plan and summer leave. Previously, management has suggested repayment of the 2024 bonds, with the 2025 bonds refinanced later. Successful refinancing of the 2025s depends on the US and French divisions recovering sufficiently to support the remaining c€600m debt. There are significant cross-holdings in the bonds and management will risk pushback if there is perceived bias in favour of the short-dated paper. Management controls where cash goes now, but cannot ignore the €600m of 2025 maturities. We expect a single refinancing operation for the capital structure, but there is not yet any certainty about what Atalian will try and do. The SUNs all trading at similar cash prices indicate the market is also lining up behind a single refinancing. Investors gave a rough ride to the incoming CEO, who deferred to the publication of the strategic plan, which will mark the end of the phoney war between Atalian and its investors and the beginning of either refinancing or restructuring.
Investment considerations:
- Atalian bonds remain a bet on receiving 50c/€ in cash from the recent sale of the UK unit and on the remainder of the business being worth north of 20c/€.
- LTM EBITDA on the remaining businesses is €100, at a 7x multiple that equates to around 57c/€ => 107c/€.
- On a positive note, performance in France and the US have begun to improve, although our modelling makes it hard for us to uphold management guidance for the year, and we are therefore quite cautious about the forthcoming results.
- Until we see the strategic plan (due in September), we cannot be confident about the amount of cash Atalian should hold back and the valuations of the various bits of the capital structure.
- Seeking external advice is a sensible move by Atalian, but it does anticipate potential investor pushback.
- For that reason, we find it early to invest in a deal yet and remain on the sidelines for now.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055