Steinhoff - Considering the options
All,
Please refer to our updated and simplified - post-Grand Settlement - analysis here.
Steinhoff are at a new cross roads. We’ve dropped out all the Grand Settlement clutter and, with a little extra visibility, have come to a simplified recap model we’ve played around with. The entity priority model has gotten shorter and while we have retained the functionality, note that considerations as to which side pays out first are also a thing of the past. At least, going by the FY21 accounts, management are telling us the way they see it and that makes sense to us.
Options:
- Unlikely perhaps, but the neatest option would be a simple new structure under which to hive the remaining assets and for which the creditors and anyone else could bid with their paper or with cash. A second step could then offer a stock split and we could wind down that massive €100m p.a. cost centre.
- We think it’s most likely that management will be looking to tier the creditors in the coming months - evenly across the structure. For that we would envisage a new Sr. Sec. loan-level at SEAG to partially pay down the As and Bs there and a similar element taking first rank on the African side, proceeds of which would be applied to the SFHG A1s. Note that on the latter a 50% LTV Sr. Sec. margin loan would resolve the structural imbalance between the SFHG creditors and leave the A1 stub p.p. with the A2s.
- In the structure above, the SEAG A2s would probably welcome the cash, but in exchange for extending maturity would want to ensure either a higher PIK rate on their stub (defeating the purpose) or seek 2nd lien on the African assets as well. The SFHG loans should then be equitised (note that current market cap is excessively high for that equitisation).
Investment Rationale:
- We continue to hold 5% of NAV in each of the SFHG loans as even after the market correction (in both equities and loans) both instruments still offer double-digit returns. While the next two years are likely to remain eventful at Steinhoff, we see an easier process ahead than looking back.
- Steinhoff debt remains a 100% margin loan on a financial holding of unrelated assets.
Please contact us to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003