CMA CGM - Q2 20 model update and comments

All,

We have just updated our model on CMA CGM. Please find it here.

We are not considering the 25s. We feel that upside is limited from here. Even as CMA CGM could issue a new longer dated bond to retire the 2021/2022 and even 2023 maturities, we believe the company would be incentivized to hold on to its cash reserves, for precautionary reasons, instead of repaying the relatively low coupon 2025 bonds.  We remain long the 2021 and 2022 bonds. 

The improved price discipline in the sector has held up both during the coronavirus-related downturn and the immediate recovery period. Excess capacity in the sector has been exacerbated by the contraction in trade volumes, and it is unclear for long the current unstable competitive equilibrium will last. However, we estimate that, under current market conditions, CMA CGM should be able to issue a new unsecured bond to address the 2021 and 2022 maturities while preserving most of its cash reserves, as long as it is willing to entertain paying a relatively high coupon (ie 7-9%).

Please feel free to reach out if you would like to exchange ideas on the name.

Juliano