Clariane - Administrating self help.

All,

Please find our initial analysis of Clariane here.

With the Company holding an investor Day next Tuesday, this is a preliminary note on Clariane. We have struggled to see what makes people excited about the name and although it is now probable the equity raise will happen, we are not convinced that at current yield of 8-9% there is much trading upside in the name. The industry concerns of staff costs and top-line pressures are coupled with underlying interest rate environment for this Healthcare/Property Company.

Investment Considerations:

- A complicated capital structure, with significant levels of non-public debt, both secured on real estate and Schuldshein. The "normal" Unsecured Bonds, with October 2028 maturity is 9% yield and in most circumstances money is good, especially considering the equity raise of €330m, likely to be completed in Q3. There is also a further private placement due June 28, which trades at c.10%, which is also of similar risk. However, we feel uncomfortable investing in these instruments as they provide very little upside in our view but are exposed to failure to complete the equity raise (unlikely) and/or to complete the remaining asset disposals.

- We also feel that we are lacking sufficient clarity on the legal structure of Clariane as well as any functional protection from bondholder documentation.

- Clariane also have two subordinated perpetuals, both of which have substantial step-up coupons if not called at the first call date. The first one is callable in June, but it is unlikely to be called. The step-up coupon is to 9.079%, and given the current price, equates to a running yield of c. 12%, just back of the dated bonds. The second is not callable until September 2026, but again has a hefty step-up, 6-month €uribor +9%, if not called. However, at the current time, it is unlikely to be called especially considering where its other debt trades.