Europcar - new position
All,
Please refer to this week’s analysis of Europcar here.
We are dipping our toe with a 3% of NAV position in the EC-Finance notes at 94.5c/E. At only 5.3% YTM, this is not a particularly juicy asset, but we like it for the following reasons:
1) It’s secured and very unlikely to be touched by a Sauvegarde. It’s also unlikely to face a separate SoA in the UK, given that would still require 75% of value to vote in favour of anything major that would spill economics upstream. The X-holders do not hold nearly as much and there is a specific EC Finance group possibly large enough to hold out if needed.
2) As part of the Sauvegarde we expect a significant cash injection at fleet level - presumably down from corporate via fresh equity or more likely further subordinated debt (quasi equity), i.e. behind the EC Finance notes. Ideally, this can be done before Europcar have to finance the summer 2021 fleet in Q2 next year. This should drive the value of the notes.
3) The EC-Finance notes benefit from guarantees of both ECI and EGSA and have a CoC clause that affords them a seat at the table. We, therefore, expect to be invited to funding a portion of the fresh cash on a voluntary basis without having to equitise any portion of the bonds.
4) Leveraging off the G’tees and CoC, we expect these notes to improve their coupon/economics to a point - if needed - where they will be subsequently trading at par.
Therefore, we do not look at these bonds from a YTW perspective, but as a trade to make 8 points next year, uncorrelated. Again, that is not a juicy return, but we hold cash on our virtual BS and its a good risk-adjusted return.
Feel free to reach out.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003