Haya restructuring - still seeking value
All,
Please find our updated analysis on Haya here.
We have re-examined our analysis of Haya as the Scheme convening hearing is due on the 9th May, and subsequently the creditors meeting end of the month. Over 95% of bondholder consent suggests that the Scheme of Arrangement and subsequent creditor vote will proceed.
Recent trends of transaction levels bode well for increased revenue in the sector. This has to be viewed against the 50% reduction in AUMs at Haya with both the Sareb and Unicaja contracts expiring. We are weighing an investment in the new capital and legal structure against our estimates of the likely cash generation of the surviving business on the basis of transaction levels and assumptions on the level of variability in the cost base.
Restructuring:
- With over 95% bonds consenting, there is limited risk of the restructuring process not completing. At the end of the process, there will be a cash sweep, above €25m, which will pay down existing debt at par. Company projections are for 46m or 11c of debt repayment. Our figures are more optimistic, and we would expect €80m of debt repayment, c. 20c. The termination fee from Unicaja will be additional monies to fund an increase in partial debt repayment.
- The balance of debt will be restructured, with a new note issued with a E+9% coupon and maturity of November 2025. The bonds will continue to benefit from a cash sweep above €25m.
- Additionally, the bondholders receive 27.5% of the new restructured equity. The equity will not be stapled to the new notes.
FY21 Numbers:
- Given the loss of the two contracts, it is not possible to read too much into the publication of historic numbers. However, what is apparent from the numbers is the increase in overall activity, post-Covid, which drives top-line revenue. FY21 transaction volume was up 15% versus 2020, with a c.50% increase in REOs transactions. This has continued into Q1, with REO Q1 volumes up 16% versus Q1’21.
- But with the loss of contracts, the focus of the business will be on cost-cutting measures. Haya have commenced a Labour Restructuring Process with the unions, but this is at a very early stage. Ultimately, this process and other cost-saving measures will be the determining factor of success or otherwise for Haya.
Upside/Downside:
- The lack of transactions through the covid period is likely to lead to a backlog of activity over FY22 and FY23 and this momentum would benefit Haya in increased performance fees. We have started to see this in the numbers and level of transactions in Q4 21 and Q1 22. Additionally, the new Jaguar portfolio acquired by Cerberus would start to contribute to revenue and EBITDA in FY22.
- But on the flip side, the overall market size is dwindling as banks edge towards the end of the cycle of divestment of their NPL portfolios. The lack of organic growth naturally leads to consolidation in the sector. The drive for lower fees, which ultimately led to the loss of the Sareb contract, means service companies like Haya need to consolidate. With the loss of 50% of AUMs, Haya are suboptimal in size and unlikely to be the consolidator. Their peers however are not in a position to be a white knight to bondholders.
Investment Consideration:
- With the bonds trading down to 70c we had approached the analysis with the view that there would be a long opportunity in the new bonds, post-restructuring. Historically, the business has been cash generative and with the cash sweep, further partial paydowns at par could be envisaged.
- However, we have been unable to forecast sufficient cost savings, mainly on the personnel expenses line to compensate for the loss of c.50% AUMs from the two contracts. Our model projects increased volume activity (Pro-forma for the loss of contracts), but unless significant cost savings are achieved, the business will not generate any cash flow to further deleverage.
- Therefore, we are not taking an active position currently but will continue to monitor the name as it transitions to its new contracted size.
Happy to discuss further,
Tomás