Sarria · Press
Independent European high yield and special situations research, cited by the financial press on restructurings, refinancings and capital structures since 2019.
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Debtwire
“The company said it would raise guidance as it had fixed German operations but it didn’t raise guidance by quite as much as we thought. Perhaps it didn’t pull the whole rabbit out the hat, perhaps the UK problems sit deeper. There will be a an LME approach in 2H26 and we expect the whole capital structure will tackled all-in-one,” independent special situations desk Sarria told Debtwire.
Debtwire
“This name is on the cusp and could go either way. The concern is the path to a clean refi is narrow. The company has to grow and this isn't a company that can just turn a factory switch and churn out more cookies,” independent special situations desk Sarria told Debtwire. “The story of reduced costs and AI is believable but it’s an equity story, so it deserves equity pricing, and the bond yields ought to be wide. We like this but it needs to be nervously watched.”
Debtwire
Sarria noted there is no reason to believe any of the bonds are cheap to buy and the lack of free cashflow does not allow for a sensible DCF valuation of the company, adding that will make it difficult for stakeholders to agree on a valuation on which to restructure the balance sheet. Sarria added that Antolin has little debt capacity.
Debtwire
Sarria noted that putting merchandise into its stores early in the season will increase commercial risk a little but stressed that this does not make Matalan the same as peer New Look. Sarria added that the business is “coming out of its shell”, describing the strategy as a return to what Matalan should have been had it taken greater commercial risk in prior years.“There is more to it than meets the eye, but the strategy makes sense and the new CEO should give us further confidence,” Sarria said.
Debtwire
Independent special situations desk Sarria held a webinar on Tuesday (7 October) assessing legal risks and opportunities for the perpetual notes. The webinar included panellists Stephen Phillips from FreiLibertas, as well as Tom Astle and Alex Kay from Hogan Lovells.
Bloomberg
While the firm’s net leverage remains high after the US school bus sale, Mobico has strong asset coverage and “its Spanish division alone would pay off the company’s debt,” Wolfgang Felix, founder of credit research firm Sarria, told investors on a call Wednesday.Regarding the RCF, Felix said he doesn’t think it will be drawn to pay down bonds coming due, because “that just makes no sense this early in the game.”
Debtwire
In a wide-ranging Mobico webinar discussion, independent special situations desk Sarria noted Spanish ALSA operations were carrying the company with the UK franchising contract model shift being a margin rather than a revenue issue. While the German operations are suffering, the public focus on Deutsche Bahn’s half year earnings could help. Ultimately, Sarria noted Mobico is a GBP 1.8bn enterprise value business, albeit with debt carrying capacity covering only 83% of senior secured debt (gross), while a sale of ALSA could cover the entire debt stack. Perpetual noteholders could ask for cash to amend and extend and SUNs may accept some leakage if it addressed the perpetual note maturity problem, Sarria stated.
Debtwire
“We’ve been positively surprised by the cost-cutting discipline and this improvement was not down to window-dressing,” independent special situations desk Sarria told Debtwire. “These are positive developments, but the purchasing gross money multiples need to remain high. The servicing margin is performing as forecast. Intrum is a smaller company now trying to service the same cost of debt that the bigger company couldn’t in the first place.”
Bloomberg
“At the industry level, these solar companies face a big problem,” said Wolfgang Felix, founder of credit research firm Sarria. “The US has walked away from Paris Agreement and people are abandoning the goals. The drive to roll out new projects is waning. Meanwhile, European governments are trying to save money. All of this is having the effect of slowing demand for these products.”
Debtwire
“Matalan had a mountain to climb on costs over the past 18 months. This is now behind the company and freight surcharges are less of a pressure. There is a built-in tailwind for 2025 now,” independent special situations desk Sarria told Debtwire. “
Bloomberg
Wolfgang Felix, founder and senior analyst at credit research firm Sarria “This increase in supply will reduce the price of the solar panels in Europe,” Felix said, adding that panels are made in large factories with minimum loads, which cannot just turn off production
PitchBook
Altice France Holding creditors have achieved a more generous deal than expected given their precarious position in the capital structure, noted Tomas Mannion, senior analyst at Sarria, in a quick take published just after the announcement.
Debtwire
… Sarria said last week. “It’s been death by a lot of cuts for Matalan, and Jo Whitfield’s departure somewhat documents that, although we think the company could have performed even worse. The 18% yield suggests
PitchBook
Intrum’s proposed restructuring is interesting as it shows what happens when the debt credit curve is spread over time and holders of the shortest-dated bonds end up being in a much stronger position than holders of the longest-dated notes, despite the pari passu provisions, points out Sarria's Felix
Debtwire
PitchBook
Saahil Dey, senior investment analyst at Sarria, said the bonds still look attractive in the low 80s because earnings should improve as Pfleiderer recovers from the impact of falling interest rates, describing the issuer a “good company with a bad structure.”
PitchBook
"We had expected a larger debt forgiveness at the original announcement so today’s announcement tallies with our numbers. Q1 numbers are not that bad and despite the lower book-to-bill ratios, the further debt forgiveness may reflect new money providers expecting more favourable terms at the expense of existing creditors and shareholders," Tomas Mannion, senior analyst at Sarria, commented after the call.
Debtwire
“The existing bonds in the high 90s clearly signal their belief in the refi. Following last week’s reporting, management will be looking to estimate interest among the bondholder community, but they might just have to post some more improvements before they can deal elegantly with the whole cap stack via a normal refinancing,” independent special situations desk Sarria said. “The second liens don’t …
Bloomberg
“It’s a matter of cash flow and making sure you can afford your capital structure going forward, create a cushion for your operations,” said Wolfgang Felix, founder of independent special situations firm Sarria. “Even after the Apollo transaction, there won’t be a lot of room in the financials with the current debt levels and as a creditor, you want to be confident that the future instruments are covered.”
Debtwire
“The Matalan performance is in striking contrast to Pizza Express, who don’t suffer from the same FX headwind, but are more discretionary than Matalan,” Sarria noted. “We expected Pizza Express to
Debtwire
“They've managed to get the tender away. It is true there was not enough cash at the Vivion level and Amir Dayan had to give up some of Golden’s cash pile to keep control of Vivion,” independent special situations firm Sarria said. “Cash is king these days and this will cost him access to some future opportunities, but it’s an obvious choice.”Sarria noted that Vivion can deal with the 2024 stub through raising debt on unencumbered hotels, or by selling hotels, one of the few asset classes currently worth anything in the UK. Sarria argued Vivion have got half a chance there and raiding Golden again is now more of a fallback option.
Debtwire
“We are still talking about the UK’s number two pizza chain and if this is the nadir of the affordability crisis, then the capital expenditure and inflation might allow for sales growth of 10% per annum now. To then refi in two years they’d also need to produce a margin uplift of 5%,” independent special situations firm Sarria said.
Debtwire
Independent special situations firm Sarria are cautious on Boparan. While Sarria remain relatively unconcerned on the competitive threats they noted that labour and electricity costs are increasing and that non-food cost inflation is not covered under existing pass-through arrangements. Additionally, the 2025 bond maturity is not so far away.
Debtwire
“It is dangerous to derive recovery from a valuation of the assets. This is a difficult situation and bondholder recovery will depend less on the fundamental value of the going concern and more on the constellation and number of suitors,” independent special situations firm Sarria, who last week hosted a Casino webinar, said. “All we know is that value will be transferred to the fresh cash.”Sarria told Debtwire that if one goes back to the Teract plan, there was the EUR 500m valuation on a 15% stake, which reinforces the view that Casino French Retail should be worth around EUR 3bn in a going concern. But a further EUR 500m-EUR 600m of fresh cash is needed to bring operations up to the mark.
Debtwire
“The growth targets are fine. Letters of credit are the same story and every retailer has this problem. Supplier risk doesn’t always crystalise as a letter of credit but at least its manageable this way. One can adjust metrics for letter of credit but then one should adjust leverage for all retailers, but that wouldn’t achieve much,” independent special situations firm Sarria said. “That said, you can’t entirely ignore it, as usually that risk is compensated out of gross margin and not interest.”
Bloomberg
“The Teract deal is the only deal in town,” said Tomas Mannion, a senior investment analyst at Sarria Ltd., an independent credit research firm. “Apart from a white knight sale — which this one essentially is — there is no other way.”
Reuters
"The specific CS situation is mostly bedded down now, but it’s no time for complacency," said Wolfgang Felix, senior analyst at credit firm Sarria Limited. "Investors realise that these bonds contractually circumvent the concept of absolute priority to their own disadvantage."
LCD
“It’s a recognition of the fact that you need the family onboard to fix future problems because they know the company and control its surroundings,” said Wolfgang Felix, co-founder of independent credit analysis firm Sarria,
Debtwire
“It’s probably just a matter of catching a falling spoon,” independent special situations firm Sarria said. “But the spoon has two explosives attached, which we are very mindful of.”
Debtwire
“We are not lawyers, but we struggle to see a legal angle for Akin Gump. Bonds are locked up under the Adler plan with over 75% on three issues and with clear majorities in the other three,” Sarria said. “In the German voting Adler’s plan received over 75% approval for all but the 2029s. That’s all more than enough for a cross-class cram down.”Sarria added that either plan is flawed, but called the Adler plan a “sitter”.
Debtwire
“They had significant write-downs on their Italian joint venture recently. CarVal’s sale of their stake, effectively resulted in a 90% write-down of the Italian SPV based on underlying assets,” independent special situations firm Sarria said. “This is an astonishing number and clearly far too much to apply across the back-book. But a number of questions linger from that episode.”
Debtwire
Current trading is not much of a concern yet, Sarria noted. Cash is weaker than expected and some of it will be down to an outflow of payables, but pre-funding inventory is the big concern, even with Matalan’s cash balance.
Debtwire
They have good liquidity and decent assets with rent linked to CPI, independent special situations firm Sarria noted. “Raising rent can of course lead to vacancies, but that’s where it pays to hold attractive assets,” Sarria told Debtwire. “On the UK hotel portfolio, after the Queen’s funeral has been televised across the world, I assume the next ten years of UK tourism are safe.”
Debtwire
Independent special situations firm Sarria had expected late 2022 or early 2023 would be the inflection point but noted it is now happening so much earlier. They were confident in
9fin
Wolfgang Felix from Sarria told 9fin: “Management is currently prioritising getting customers into stores and driving up overall market share rather than increasing margins. This year’s objective is definitely to maximise revenue in preference to margins.”
Debtwire
Should any refinancing not materialise, then there remains a risk of a debt restructuring according to a 17 June desk note from independent special situations firm Sarria.
Debtwire
“The Amodio’s have been to the Spanish regulator and there is now a co-operation agreement between CAABSA and OHL registered with the CNMV,” Sarria said. “If EU and US infrastructure spend takes off, then
Debtwire
“Matalan are somewhat anti-cyclical and have a track record of outperforming in crises. Last time in 2009, before the cotton spike, CVC even came with a GBP 1.5bn bid at 10x,” Sarria continued. “It’s a great performance any way you look at it. The subs are 3.5x leveraged on our math and are par paper.”
Debtwire
“An update on liquidity would have been helpful, but it was clearly not something worth shouting about. Also the timing is now sensitive while negotiating at so many levels,” Sarria said.They will receive a boost from the Corestate stake sale but most of the Corestate stake was held at Aggregate 2, which is separate and direct holdings were small, so that should strengthen [Aggregate shareholder] Walcher’s negotiating position, Sarria added.
Debtwire
“Adler are marrying the pretty daughter first to generate liquidity for the treatment of the sickly daughter,” Sarria said. “They are selling good, fungible assets, which concentrates stakeholders on the riskier development book.”
CapitalStructure
Speaking on a real estate webinar today (14 October), Sarria analyst Tom Mannion said the refinancing negotiations would likely be "difficult" given
Debtwire
Some of the [Viceroy] valuations seem accurate, according to Sarria. “We are looking at which property is in which entity and how much debt each guarantees as well as how much money each box makes or needs.”Sarria will host a webinar at 3pm UKT this Thursday (14 October) to discuss the European high yield real estate sector. To attend, one can sign up here.
Debtwire
The market expected more cash coming in at once but it didn’t, independent special situations firm Sarria noted. “We see LTV well above the 39%, but what will they buy with the cash when it comes? Amir Dayan may have cash stashed elsewhere, but we’d really like to see the OpCos.”“When I ride a rollercoaster, I have to have my eyes wide open,“ Sarria commented. “But some people like to go with their eyes closed. Vivion is for them.”
Debtwire
Sarria noted they were short earlier in the year thinking they would run out of cash, and it was “astonishing” they didn’t. “The franchise is unimpaired and the move to online still stops at their price bracket, but they are now more levered than before – despite appearances,” they commented. “The EUR 100m cashflow in June only shows that the Takko had good sales and management said as much. We can rest assured that the EUR 150m [cash balance] won’t be around at quarter end.”
Debtwire
“To the 2024s, this announcement makes no difference,” said Sarria, an independent special situations firm. “The economics of the deal remain the same.”
Debtwire
“This was one of our most successful trades last year and it wasn’t Covid-related – it did well for fundamental reasons. But we did not participate in the new bond as it became clear that feed prices would eat up much of the pro forma adjusted EBITDA this year,” independent special situations firm Sarria said. “The company has good liquidity and the labour shortages may be in part transitory, but EBITDA will fall further.”
Debtwire
“This is a bet on control of the delta variant and if there is no control then they are in trouble – along with half the economy. Another lockdown would be tough but if the UK finally opens next month, then Matalan have all to play for,” independent special situations firm Sarria commented. “The second
Debtwire
“Even though we had been long the name for most of last year, we [were] more than sceptical on just how long the run would last. Chickens don’t fly and neither does Boparan,” Sarria commented. “Last year Boparan was one of our favourite fundamental trades, but part of this was probably borrowed from the future in terms of who pays for what and when along the supply chain.”
9fin
Online growth will be strong, this is what supports the credit story, said Wolfgang Felix from Sarria, the credit opportunities desk. The company previously held back on its online rollout on fears of self-cannibalisation. But by the same token it has a captive customer base and will be pushing hard to maximise its IPO valuation, he said.
CapitalStructure
Wolfgang Felix at Sarria acknowledged that Douglas’ online business was now a powerful attraction for investors, but said the group would need to demonstrate more online growth and post-COVID stability before CVC could cash in on an IPO.
Debtwire
As the 2024 ad hoc group holds just north of 10% of the 2021 notes, the consent achieved as of early February means that a number of smaller 2021 investors didn’t sign up to the lock-up agreement, which is surprising given it is a really good deal for the 2021s, noted Sarria, an independent special situations firm. These holders could give consent at a later stage, but even with them on board, the company will probably fail to reach the 90% threshold, Sarria added.
Debtwire
“The option to partially exchange for 49% of that Dutch NewCo entity doesn’t sound like a great idea," said an analyst as special situations firm Sarria. "You would have no trigger point for that paper and Intralot entertains inter-company dealings between its Greek and US entities. If instead you decide to remain 100% a creditor of the group, you would not only earn more coupon, but also have both, an implicit economic claim to the 51% of that same entity and on everything else too. While some consider the remaining group a net liability, we would certainly choose the hard maturity over theoretical economics here.”
Debtwire
“If they are trying to restructure creditors, there would be no way the CEO would be talking in the press about a 2022 IPO," independent special situations firm Sarria said. “It is important they paid the coupon and the CEO talks about EUR 1bn online sales and Christmas sales being down less than 10% plus the 2022 IPO. None of this would happen if they were kicking off Germany’s biggest test of its new insolvency regime. It wouldn’t happen in this order – they could do an A&E.”
Debtwire
“Post pandemic this should be a GBP 80m-100m EBITDA company again and it's not overly levered on that basis,” Sarria continued. “Give it time and they will be alright. Nobody gains from pulling the plug. If you take a long term view, the first liens continue to be covered, but the second liens might be testing [shareholder and founder John] Hargreaves’ resolve one more time.”
Debtwire
The impact guided in 2Q20 was an expected fall in orders in 3Q20 and this is exactly what happened. In this context, 3Q20 was unusually good as there was a stronger EBITDA and better than expected results against a 10%-17% guided order intake decline, special opportunities firm Sarria said. “The order intake has already [gone] to normal levels and 4Q20 should return to previous EBITDA and revenue levels,” they added.
Debtwire
“This is KKR’s third management team,” said a source at Sarria, an independent special situations firm. “It's a difficult sell that this time the story is different.”
Debtwire
Special opportunities firm Sarria had three of its theses confirmed from today’s call. Firstly, that other debt collectors have written down portfolios and Lowell could next quarter. Secondly, that management seem confident the equity injection will stay, and they want the business to grow. Thirdly, that the company may have accelerated collections, either through selling NPLs or offering deals to delinquents for one-off payments.Sarria had been looking to bring a group of bondholders together to structure a refinancing plan, as reported. It also previously held a conference call for noteholders, as reported.
Debtwire
Water utilities are highly regulated entities and under the recently-agreed budget, the company has good visibility of its future earnings and must manage expenses accordingly, special opportunities desk Sarria noted.
Cbonds
Debtwire
In 2019 there was a major short on the name but this was due to heavy one-offs and cashflow generation coming purely from factoring and inventory facilities, Sarria noted. But while there could be a 3Q EBITDA
Debtwire
“Simply put, a takeover bid will involve a degree of deleveraging, which is a positive for the B notes. And if no bid happens, the company will pursue alternative methods to deleveraging, either rights issue or more likely an equitisation of the B notes. That’s when the differing motivations of the B note holders will become apparent,” Sarria said.
Debtwire
Independent buy-side desk Sarria is looking to bring together a group of Lowell bondholders and additional funds and structure a refinancing plan that it aims to take to the UK-headquartered debt purchaser, according to two sources familiar with the situation. The initiative was started by Sarria together with a sizeable client, with the aim of relaunching the refinancing process that stalled after talks with a group of wall-crossed funds broke down in July.
Debtwire
“The CABB business is resilient in this kind of COVID environment and there is revenue visibility on contracts. The end-markets are mostly in the relatively stable agrochemical sector, with the remainder of the exposure also very diversified,” Sarria noted.
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Bloomberg
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Financial Times
Wolfgang Felix, head of Sarria, said: “Everyone is trying to interpret what Hony does next. There are a few options open to them now. The maturity of the debt in 2021 is as good as tomorrow in terms of how fast PizzaExpress is going to turn round.”