Vivion – Rolling On
All,
Please find our unchanged analysis here.
The Vivion call had some interesting information on the refinance of the 2024 bonds and the possible uses for the cash pile at Golden Partners. Our view has not changed as we see this presentation as validating our investment thesis. A Q1 trading statement unusual for Vivion and as we noted in our recent morning mail, is likely to be a cleansing exercise.
Investment Rationale:
- We have a 3.5% NAV position now at 89c/€. The YTW on the position is 10% with a further 1.25% (rising by 25bp a year) PIK. We view this as a yield play as we do not anticipate a quick refinance. Feedback from clients indicated that there was little liquidity in the bonds making it difficult to follow the trade. The cleansing statement may well see bond liquidity improve; for now, we will continue to hold our position, if liquidity doesn’t improve, we will consider taking it off.
- There is plenty of covenant headroom: LTV on our valuation was 52% in Jun 2023. Covenant maximum LTV is 60%, with actual (calculated by the docs) 32%. The maintenance ICR is 1.8x, and we expect a figure of just >2.0x for the year-end. If the Refinance debt was threatening the ICR, management has said it would sell assets to reduce interest.
- UK hotel cap rates have stabilised, and we expect the same will happen in Germany over 2024. Falls in € rates will help stabilise German office cap rates.
- The August 2024 maturity of €170m will be met with cash on hand and the proceeds from debt or asset sales. The Dayan family will not risk losing control of the Vivion assets for €170m. Net assets at Dec 2023 were €1.6bn (fully consolidated basis).
- If the Dayan family choose to allow the business to default in August, the downside for the 2028s is 20 points.
- We sold our previous position in the 2024 bonds when the Amend and Extend operation was completed in August 2023.
Bank debt is likely to be used to refinance the August 2024 bonds:
- Vivion will raise the €163m needed to repay the 2024 bonds by bank borrowing secured on its UK Hotel portfolio. There are £1.6bn of UK assets with no bank debt attached.
- Total Hotel assets are €2.1bn; there are €231m of loans secured on €450m of assets. The additional €170m debt would represent a 10% LTV on the unencumbered hotels (LTV 20% for the whole portfolio).
- It would layer SUNs holders but would remove the refinance threat.
Negotiations on the debt are not yet complete.
- Cash at Vivion Investments is €80m so we expect Vivion to raise at least €163m in debt.
- In extreme circumstances, further cash could be upstreamed from Golden Partners, but given the leakage, we think this is very unlikely.
- Golden could upstream €100m of cash to Vivion even if none of the German debt due in 2024 is rolled.
Golden Partners is seeking to roll its bank debt, but has cash:
- There is cash of €383m at Golden Partners.
- Golden has €190m of debt maturing in the last quarter of 2024, which it is looking to roll Alternatively Golden could use a mixture of cash and new loans (possibly secured on different assets in Germany).
- The cash is earmarked for investment in German office assets in the future.
I look forward to speaking with you all.
Aengus
T: +44 203 744 7055