Intrum - Selling the Kingmakers - Positioning

All,

Please find our not-yet-updated analysis here.

The 25s have become almost something like kingmakers in the tussle between the short and long end of the curve. As notional holders we of course like that very much, but back above 80c/€ we feel more than fully valued for the moment and if anything concerned that for all the intercreditor negotiations we might ultimately miss taking a bite out of the equity. 

Investment Rationale: 

- We are closing out the remainder of our positions in the 25s (long) for 81/5c/€ and the equity (short) for €26.50 p.s. We remain convinced that the equity is largely worthless here, but just in case bonds don’t end up converting into equity, we are afraid of wearing a big spike in the price - if only for a short while. 

- We feel that the SSNs are fully valued in the 80s and so will take the opportunity to exit the second half of our notes position at a good profit. We think these bonds have perhaps another 10 points to go on good news, but should then fall back as soon as accounts are trying to take profit. We are selling the execution risk here.

Current trading and next steps:

- Q1 accounts have been stable - nothing to drive the name in any direction, showing collections at 100%.

- The 2025s have something like a kingmaker role. The 24s are looking for a partner in crime to oppose any but their own restructuring plan, which will see them paid down first. To get in bed with the 24s however, the 25s need a commitment form the company that they will be next in line, or else it’s pointless. Of course there are various variations on the theme, but the company is understandably reluctant. 

- Conversely the long end of the curve is hoping to avoid the 24s sailing into the sunset at par and thus need the 25s to prefer a wholistic restructuring now. 

- All of it is taking place under time pressure, which means it is hard to argue for a lengthy negotiation with shareholders. We don’t think the shares will be worth much after an A&E that will likely result in higher PIK levels or convertible instruments, but if the structure remains as leveraged as it is now - and it looks likely - then the bonds won't trade well after the process.

- Over the coming days we will be updating our Intrum analysis for the latest financials. The company did make a few interesting disclosures on the last call that should help us put some goalposts around the CMS valuation. 

Happy to discuss,

Wolfgang

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