CABB - initiation

Dear All

Please find our initiation of CABB here.

We are not considering a position in either the subordinated bonds or the senior bonds at this stage.  While we acknowledge that the business is likely to remain resilient over the near term, we note that the loan to value at the subordinated bond level is around 85%. This would lead to significant volatility for the SUN especially, but also potentially to the senior bonds to much less extent. Cash flow coverage of interest is also likely to remain thin for the next few years, which makes a position in the SUN risky.

Management stated that the company had been relatively unaffected from the demand and supply side in Q1 20, and still expects FCF to be positive in 2020. However, it notes challenges on the logistics side.

Contractual visibility in Custom Manufacturing: in 2018 for instance, 53% of revenues were contractually secured for more than three years, and 70% was generated under key supplier agreements, which entail contractual visibility on volumes and margins.

Revenue visibility in Acetyls: as of April 20, CABB noted that it has visibility on 50% of its revenues from the Acetyls segment on a 12 months horizon.

We are looking forward to exchanging ideas on CABB with you.