Transcom - comment

The Swedish BPO operator got downgraded by Moody’s to Caa1 from B3 and its probability of default rating to Caa1-PD from B3-PD. Moody’s also downgraded the rating on Transcom's EUR 380m backed senior secured notes due 2026 to Caa1 from B3. The outlook has changed to negative from stable.  

 We agree with their narrative that Q4 2024 results will sequentially improve and there will need to be a material improvement in their 2025 projections for a par refinancing. We have modelled in a modest 4% improvement in revenues in 2025 (which is in line with last quarter’s contract wins) without the drag of legacy contracts maturing. We also note management’s comments of restructuring costs and investment in the sales force to be behind them which was not mentioned by the rating agency.  Our base case for a refinancing has always been a A&E with an equity injection from the existing shareholder.    

We remain constructive on the senior secured FRN with a long position at 4% of NAV.