Matalan - Lockdowns, liquidity and refinancing

All,

Please find our updated analysis on Matalan here.

The all-new model rolls forward the various moving elements to estimate liquidity through the current lock-down scenario and allows for adding further lockdowns, as is likely. It’s not based on the usual LfL considerations, but instead on the numbers of weeks different types of stores are open or closed. Also, we have steered away from using days payables etc. to drive the WC gyrations, but opted to a simplistic 90 days assumption based on rolling stock instead.

We remain long the SSNs for 5% of NAV.

Liquidity:

- In short, we estimate that the company has enough liquidity for dealing with lockdowns into the summer.

- We are estimating the “managed” burn rate at approx £35m cash per quarter, although that does tend to result in a pile-up of trade payable commitments as well as rent commitments mostly.

- If managed well, we estimate that Matalan could withstand another harsh lockdown in spring, although from there trading will have to recover swiftly.

- “Management” means mostly the re-scheduling of purchase volumes and the soothing of associated WC ins and outs, as well as approaching again its landlords with further delayed payments. We are assuming the VAT balance is payable in Q420/21.

Refinancing (management mentioned it):

- The market environment is certainly conducive, and if this is the last major lockdown and trading recovers swiftly, then even a single tranche of SSNs could be an option.

- But if not, the 2LNs pose a conundrum for the shareholder and therefore also to the remaining creditors. Given the tightly stacked maturities of the current structure, the 2LNs need to be addressed as well. But converting into a longer dated PIK instrument eats into the shareholder value too aggressively.

-X-holdings seem to rule out any aggressive route between creditors.

-> Management seemed upbeat in its comment, but we assume a consensual deal that may require another SoA among the 2LNs. We will be looking for further colour.

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