OHLA – Work to do.
All,
Please find our slightly updated model here.
The shape, if not the size of OHLA’s equity raise is beginning to emerge, but as always with OHLA, nothing is straightforward, and there is still the potential for the whole deal to fall apart. So far €101m of €150m has been pledged by new shareholders (€75m) and the Amodio family (€25m). €101m would resolve the immediate cash issues (bond redemption and Ingesan Bridge repayment), whilst leaving OHLA short of cash if there are any road bumps. The minority shareholders will not fill the €50m gap, so if it is raised, it will likely be a convertible instrument.
Investment Rationale:
- We hold 6% NAV in the SSNs. We expect 50% of our exposure to be amortised (2-point capital gain) and for the remaining 50% to be extended to March 2029 at a similar coupon. We are only banking on £101m of Equity being raised, and the remaining 2029 bonds to trade as wide as 15% (86c/€) initially.
- The €400m of bonds (repayable in two equal tranches in March 2025 and March 2026) will be subject to an Amend and Extend. The first tranche will be repaid in March 2025, and the second tranche will be extended to 2029 from March 2026).
- The March 2025 downside is 15 points (80c/€). However, with €100m in equity and another €100m in released collateral highly likely to be delivered, the risk of default on the First Tranche is small.
- The March 2026 tranche will be extended to March 2029, we expect a coupon of around 10% and a yield of 15% initially, this equates to a fair value of 86c/€. We would expect the bonds to trade above 90c/€ only once the €150m equity raise is complete or the Canalejas sale finally happens.
- The bonds require OHLA to use the proceeds of Canelejas to reduce debt, so even without the additional €50m the 2029s will be substantially covered by the €200m expected proceeds. We are sceptical that the last €50m will be delivered and will almost certainly need to come from a Convertible bond.
- The entire transaction could still fall apart, in which case both bonds will trade at around 70c/€ (in line with 2021).
- OHLA has an appalling record in delivering on its promises to creditors. There is a risk that neither the additional €50m in equity is raised or the €50m convertible. We would expect the 5 points of downside in the 2029 bonds.
- There is still a risk that the entire equity raise falls apart
€101m new equity is enough for now:
- The cash pledged is enough to see the First tranche of the bonds repaid.
- If the second tranche is extended to 2029, there is little pressure on OHLA to sell Canalejas or the Services business. It will happen eventually, but not quickly.
- €257m of cash is coming in (€70m Private Placement, €31m Right Issue cash pledged, €55m sale of CHUM, €101m cash collateral released by banks). OHLA also has €42m in cash. Bond repayments and the repayment of the Services bridge means that cash will be €38m higher. If the €50m convertible is raised (leading to €38m in additional cash collateral being. released), that cash increase rises to €126m.
The equity raise will prompt a game of chicken with bondholders over the last €50m:
- The Amodios will still have to get bondholders to agree to the three-year extension of the 2026 bond tranche, and currently, 33% of bondholders have signed up to the deal.
- Under the Trust Deed, extending maturity and changing the maturity are Reserved Matters and require a 75% majority, but in the case of an adjourned meeting bondholders representing 25% would be enough. With 33% signed up, this deal ultimately gets done.
- The Amodio’s will want to junk the last €50m, to avoid the risk of them being diluted. We expect more games and veiled threats before the deal is completed simultaneously with the equity close
The Banks have taken the opportunity to reduce their exposure:
- The banks have reduced their guarantee exposure to €126m (from €363m). The level of guarantees will be reduced to €315m, and the State Export Credit agency will provide a guarantee of 60% of the bank’s exposure.
- The banks had been the driving force behind sizing the Equity raise at €150m and will continue to hold €38m (vs €140m) if the full €150m equity is not raised.
- The relationship with the banks is pretty fractured, and the lenders were unhappy with the Amodio family’s choice of CEO. The corporate governance issues will not disappear.
Aengus
T: +44 203 744 7055