Frigoglass - Caretaking

All,

Please find our slightly updated analysis of Frigoglass here.

As the final execution details are being agreed, one last item sticks out: What share should the family hold? The bond’s structural strength from their first restructuring in 2017 remains at odds with the reality that these assets are difficult to sell without family approval. The Leventis-Davids control the larger division’s by far most important client and own the majority in Beta Glass too, including various connected enterprises on the ground in Nigeria. Ironically, the family seems to almost hold a right of first refusal on the sale of these assets, no matter how much control bondholders wrest in the interim. What is on paper an (almost) astonishing win for the bonds in legal terms, propels the same into a mere caretaker position for a few years.

Positioning:

- You won’t be surprised to read then that we are not - and won’t be taking a position in Frigoglass for some time. The stub is to take the form of a private placement and the shares (or similar) will be even more illiquid.

- We struggle to forecast any significant positive CF for 2023 and 2024 and even thereafter there is a natural ceiling for margins in these kinds of companies. 

- The disproportionate exposure to EM jurisdictions, both in terms of asset location as well as sales, requires a substantial return premium over other most assets we are seeing. Whether or not Frigoglass instruments can achieve that premium (the super sr. certainly can’t) won’t be clear for a long time.

- Just how great the future upside will be is also curtailed by the limited options when it comes to monetising those assets away from the Family. Another refinancing of twice restructured debt is unlikely and so it’ll come down to selling the company or at least its assets back to the very same family this transaction aims to replace. Other than the headache of running Frigoglass and controlling more of the G in ESG for a while, bondholders are achieving very little here.

- For a brief period after the restructuring and again perhaps once ICM supply returns to Romania there is a chance that the new instruments will trade better than 28c/€, but we are concerned we won’t be able to realise that.

Next Steps:

- Advisors are anticipating filing the petition with the Dutch courts next week, from when it should take some 3-4 weeks ~ until 3rd week of March.

- As soon as the petition is filed, bondholders will receive access to the data room where they’ll find a summary plan, the LUA and the new private placement memo. 

- All bondholders will be invited to participate in the new money on a pro-rata basis.

- Restructuring will be effected by a share pledge enforcement against the Finance BV, after which its assets (shares in various group companies) will be hived under the yet-to-be-created NewCo, which will issue the private placement and some form of participation, depending on legal form and jurisdiction.

- The jurisdiction of the NewCo (and new issuer) is not yet agreed on (Jersey, Lux., …). The equity bondholders will hold in that entity will be private and will be even less liquid than the new private placement notes.

Happy to discuss,

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk