Vivion – Positioning the levers.
All,
Please find our updated analysis here.
Vivion faces a closing window to deal with upcoming maturities. The 2024/2025 bonds will need to be dealt with together, possibly along with the Convertible. An amend and extend (A&E) is the best option to avoid a loss of control of the assets in the UK and Germany. We entered these bonds in the low 90s, our timing was poor. However, our analysis shows that Vivion has the levers to successfully reschedule its bond debt, but in a volatile market, we need to de-risk our portfolio and will reduce our 4% NAV position to 2% for now.
Investment Considerations:
- We have held a 4% long in the 2024 bonds, which we are now cutting to 2% to de-risk the portfolio given the refinance challenges facing Vivion. Our analysis shows that Vivion can remain in control of its own destiny but, it needs to make the right decisions and they will cost. We prefer to be at the shorter end, there is the potential for a deal with the 24s. We still see Vivion as an interesting investment. However, there is no short-term catalyst for a rally, the SSNs will move when there is a amend and extend (A&E) proposal from the company. The longer Vivion waits the more expensive this will get. The A&E proposal will require some cash for bondholders, security and a significantly higher coupon. (a premium to the 8% M&G deal). Although, we still see the potential for a deal to extend maturities that will benefit bondholders.
- The bondholders hold the whip hand, but Vivion has a stick in terms of how liquidating its portfolio might prove very painful for bondholders given the weakness of the documents.
- We expect the family to try and avoid a restructuring which would cost them control of assets that will eventually rebound. The question is how much they will pay Bondholders for the option.
- Our analysis shows an LTV of 55%; in this environment, re-financing on an unsecured basis isn’t feasible.
Amend and Extend:
- In Aug-24, we expect Vivion to have to refinance both the 2024 and 2026 bonds, which total €1.25bn. The €200m convertible may also need dealing with at the same time, but management has not discussed where it was placed.
- A payment of 10c/€ + another 17c/€ from asset sales in exchange for a 6-year, 9.5% coupon (semi-annual) SSN bond. The LTV would be 50%, and the collateral would cover the notes to around 73%. The 2024 bonds trade at 74.7 (the 2026’s at 61.4), the overall return would be close to par, and the new notes would yield a premium to the recent M&G loan.
Valuation chopped and now in line with Sarria:
- The €325m charge leaves LTV at 57% by our model; Vivion will not be able to refinance above 50% given the current state of play in the Real Estate market.
-Our DCF calculations are now only around 6% lower than Vivion's.
- Vivion and DIC are both betting on a recovery in valuations in H2, but we see stability. Vivion needs to generate cash and get bondholders comfortable with a longer-term instrument, priced for the current market and with security.
Aengus
T: +44 203 744 7055