TAP Air - initiation
All,
Please find our initiation here.
Airline fundamentals are at best uncertain in this age. So this investment is not without its risks. However, the SUNs are reasonably well positioned in TAP SA itself. As the covenant situation is less than tight, they can be diluted by up to E1.2bn of Debt, which is effectively the situation now since that amount has been funded in emergency loans by the Portuguese government in 2020.
Further Aid:
The Portuguese government further foresees injecting E2bn between now and 2025 with the airline only returning to 2019 operating levels by that time. All signs are pointing to the government considering to equitise the current loans to make way for guaranteed new loans - presumably again pari passu with the bonds in TAP SA - or at least to the extent possible (E1.2bn).
Bail-in:
Aside from the highly uncertain fundamentals, we cannot see an easy way for the government to coerce the bonds into a haircut. Documentation is not optimal, but given the company has restructured only as recently as 2017, it looks tight enough to prevent major asset leakage, layering, dividends etc aside from the (significant) amounts discussed above.
Situation now:
Bonds trade around 72c/E for a YTM above 15% to 2023 and 2024, so maturing before TAP reach full operating level again. The restructuring plan filed with the EC in December on which TAP are hoping to receive the green light this month does not contemplate the bail-in of the bonds, but the EC may have its own demands.
Happy to discuss,
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003