Lowell - Better Places

All,

Please find our updated analysis of Lowell here.

Having done endless work on the name in 2020, we find the situation relatively clear-cut now. Back then, selling CDS to fill the gap was a natural strategy. Now the ends are far apart and we can’t find the incremental value that would make us buy these bonds with no discount to recovery value. The deal - if there will be one - should be coming now that the Cash EBITDA Leverage looks good and liquidity is close to covering the RCF. Any delay in reaching an agreement would lead to either a drop in that coveted LTM Cash EBITDA figure, or shrink the back book more than necessary.

Investment Considerations:

- We exited our position in March and are remaining on the sidelines. Our 2023 bet on sufficient Cash EBITDA aficionados had looked promising for a while - until Intrum happened first. It was not predicated on fundamental value and we had kept it small. Today, we would only invest on the basis of fundamental value in the bonds. That value lies in the mid 60s and so we find that current market prices are not leaving sufficient upside to justify the time we'd spend on the name. After injecting £600m in 2020, shareholders may be a little less enthusiastic this time and so failing their contribution and considering the small size of the servicing business the name has little upside beyond the assets. Fees into our right pocket would have to come out of our left pocket.

- We see better places to make money from recovering asset values than Lowell SSNs.

Negotiating position:

- In a word: good. A Distressed Sale is already pre-contemplated in the documentation. The bonds are issued out of the main cascade of three LuxCos and benefit from extensive g'tees and security. The RCF is super sr., as are the ABS silos - owned or deconsolidated.

- In H224 the upside case is defined by fresh cash from the sponsors or another willing entity in GS' orbit, which may have provided the incremental £200m cash injection in late 2020. Bondholders would likely still face a haircut, but the close proximity of SSN maturities allows for less coercive elements and thus less violence between creditors.

- The company per se does not need fresh cash. This should strengthen the hand of creditors vs. the shareholder. 

- Bonds are at risk of being layered via further ABS subsidiaries.

- Conversations have started.

Here to discuss with you,

Wolfgang

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