Branicks – Executing on promises - Positioning
All,
Please find our unchanged analysis here:
Branicks first-half results show it is on track to complete its asset sale programme for 2024. For now, liquidity is adequate, even if further debt rescheduling will be needed in 2025. There is upside in the bonds, and we expect creditors to continue to co-operate in ensuring value is not destroyed through insolvency. The rise from 34c/€ to 52c/€ reflects increasing investor confidence that Branicks will survive, but we still see upside potential as our fair value on the bonds is 67c/€.
Investment Rationale:
- We are increasing our 3% NAV long position to 5% in the 2026 SUNs. So far, the trade has returned 40% in five months; we entered the trade at 30c/€ and the bonds are now trading at 52c/€.
- Branicks will likely complete an A&E operation for the 2026 bonds and the promissory notes in 25Q2, funded by proceeds from asset sales. To get investor support, any A&E will need to show a package nominally worth at least 90c/€ to avoid being classed as a distressed exchange. In the meantime, the SUNs will rise towards their fair value of 67c/€.
- We have applied a discount to NAV, which indicates a value for the SUNs at 67c/€. In our view, company-reported 'market values' of owned property (based on external appraisals) are well above where the assets would likely trade in the market.
-We see a low chance of creditors refusing to extend as an insolvency process would leave all creditors in a much worse position so, we see 15 points of upside to fair value and 10 points of downside A non-consensual process would lead to losses for banks, SUN and Promissory note holders. It is possible, but we consider it unlikely that creditors would engage in such an act of self-harm.
- There is little risk of further Senior Secured issuance layering bondholders as this would be expensive, and would trigger the ICR. Parri issuance is equally unlikely with bond prices at 52c/€.
24H1 results are in line with expectations, but VIB is doing a lot of the work:
Management reaffirmed its 2024 asset sale target of €600m - €900m; this is encouraging, but the sale of Logistics assets by VIB represents the majority of disposals. The 1H24 numbers are broadly in line with where we expected. Branicks is making strides, but we want more sales from its office portfolio. At its AGM, VIB shareholders failed to get a Special Auditor appointed to examine transactions between VIB and Branicks. We expect that the level of transactions between the two companies will fall but not cease.
Aengus
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