OHLA – Our chips - Positioning
All,
Please find our unchanged analysis here.
OHLA bonds have performed strongly since an agreement for the sale of CHUM was announced (with completion hoped for by year-end), and OHLA proposed raising fresh equity. Since then, two competing and incompatible cash offers have emerged, raising uncertainty about when and how much money will come in. OHLA is one of our larger positions, and the bonds are up 4.5 points since the end of May, so we are taking some of our chips off the table.
Investment Rationale:
- We will reduce our position from 6% of NAV to 3% of NAV, with an exit price of 94.5c/€. Our entry price was 87c/€ in June 2021; since then, we received 17.5 points in cash coupons and 4.5 points in upside, less 4.5 points in PIK coupon => c6% annual return.
- Management has been far too slow at executing promised asset sales, resulting in the banks refusing to release their cash collateral.
- We still expect OHLA to be able to raise the cash to refinance the bonds in March 2025, but the uncertainty prompts us to de-risk.
- Management has consistently said it will refinance the bonds in the market, but OHLA may still need an Amend and Extend operation.
There is uncertainty about the amount of cash that to be raised:
- We are sceptical that the Amodio proposal will raise more than the €25m they have committed. The family hopes to execute the promised asset sales by year-end, but we are equally sceptical here. We do not see the banks releasing their €140m collateral. There is a risk that OHLA will need to return to bondholders with an extension proposal. We would not expect the banks to release their €140m collateral until the asset sales are complete.
- The strings attached to the Atitlan proposal inject more uncertainty and delay into the process. A €10m break fee will not be palatable for the OHLA board. The eventual terms for any deal would be up for negotiation. The banks are unlikely to release their collateral until the sales or the second €75m rights offer has been placed.
- If the Atitlan deal fell away, the Amodi injection would likely happen, but there are no guarantees beyond the €87m they have already invested.
The proposals are incompatible:
- The Amodio family announced a new equity raise of €100m; they are willing to provide €26m to avoid dilution. There does not appear to be any underwriting. The family hopes that if no other investors step up, they can plug the gap with the completion of the CHUM sale, the Canalejas sale, and the Service Business sale (on which there is a €40m bridge loan). There are no other sizeable holders in OHLA stock.
- The Atitlan proposal is to inject €75m and raise a further €75m in a rights issue. Atitlan and Stoneshield (its partner) would have 36%, with the Amodio stake diluted to 17%. Atitlan wants exclusivity, a two-month due diligence period and a €10m break clause. They have approached the board directly and are not talking to the Amodi family.
The OHLA Board has options if no cash is raised:
- If even the €25m from the Amodi family didn’t materialise, the board has two options.
- 1) Mandate the sale of the assets for what it can get: The rationale will be the probability of an insolvency event that could wipe out the shareholders. Offering a discount on the €55m CHUM proceeds for a quick settlement (as opposed to a long-drawn-out process in a restructuring); reaching a settlement price with Mohari for the Canalejas asset. The Services business is subject to a €40m bridging loan from the banks, so the pressure is already there to get that deal done.
- 2) Approach bondholders for an Amend and Extend: both the 2025 and 2026 maturities would need to be extended; 10c/€ cash, a 5% coupon and 3% PIK for a three-year extension would be expensive but feasible. To get bondholder support, OHLA would need to give commitments around asset sales happening with proceeds used for debt redemptions, but it would leave shareholders in control. There would be no chance of the banks releasing the €140m cash collateral until the asset sales were complete, but it would buy time.
I look forward to discussing this with you all.
Regards
Aengus
T: +44 203 744 7055