It’s finally happened, e-commerce is now bigger than t-commerce. A good 6 months after we crystalised a near 50% gain, we return to the name to find another opportunity. So where does the latest LME leave the now unstapled PIKs? Or should we look at the FRN? We have rebuilt our model and projected our scenarios out to the new maturity horizon. But as far out as we gaze, the answer may lie only a quarter or two away.
At 96.75 on the Mar-32s, we have revisited Clariane following the September refinancing and H1 results. There is a lot to like: the largest operator in a growing sector, occupancy at 91.7% and nothing material due before 2028. So why aren’t we buying? Roughly half of revenue is set by governments, France is the largest market and the 2027 election is approaching, all while wages remain the biggest cost and c.€300m of capex is committed for at least the next two years. We have worked through how these pieces fit together across the structure, and what that means for bondholders at current prices.
Having invested in AMS Osram since June 2023, we have revisited the whole capital structure to identify where further value remains. With the Mar-29 bonds at 105.5% and increasingly call-constrained, we have examined the scope for further deleveraging through asset sales and cash generation, and how this translates into returns across the curve. The credit story continues to improve, but the key question is how much of that upside is still available to bondholders at current prices.
We have examined the documentation underpinning the Altice International litigation, mapping the allegations against the financing documents and tracing the key transactions to assess the implications for creditor recoveries. The case goes well beyond a conventional LME challenge, with creditors seeking to unwind alleged value leakage and restore assets to the restricted group. Our analysis focuses on the legal routes available to creditors, the practical challenges of recovering transferred assets and the implications of competing claims, including Fidera’s position against Altice Portugal.
10 points above, where we took our position in ION Platform, we have revisited the credit following Q3 results and improved disclosure. The relationship between reported performance and actual cash generation remains central to our assessment, alongside cash movements across the wider ION Group. The conference call has added a further dimension to our thinking, prompting us to reassess some of the key considerations for bondholders. Our latest work builds on this analysis to refine our investment view.
In construction, profits can diverge from cash flow for years. OHLA is a prime example of this, having gone through two major recapitalisations in the last 5 years, but its financial architecture remains complex. Seasonal working capital swings, costly debt, dependence on bank guarantees and several potential liquidity catalysts all intersect, and the next 6-9 months could prove pivotal. The question is whether improving operations and disposals can translate into sufficient financial flexibility to navigate the challenges ahead. There are several moving pieces, and the order in which they fall into place may matter just as much as the outcome.
At 95.7c/€, we have spent time reassessing Birkenstock following the recent results and June refinancing. One thing is clear: there is no obvious problem with the business. Growth is strong, margins remain exceptional and there is a lot of equity sitting underneath the bonds. So why aren't we buying? The answer is less obvious, and increasingly has little to do with whether Birkenstock can sell another pair of sandals. The headline leverage only tells part of the story; the more interesting question is what the new capital structure could mean for bondholders. At current levels, the question is not whether the credit can survive a downturn, but what bondholders are being asked to give up while the business is still performing this well.
Looking back a few years to when we started covering Vivion, we notice a subtle but important drift in the credit that is changing its risk profile. In light of the rising interest rate environment, we have rebuilt our analysis from the bottom up, assessing both the business and its assets separately. As a result, we have left our position unchanged.
After another (third) failed refinancing attempt by Apollo, we have re-examined Graanul in light of recent market developments. We have revisited the balance between the bonds’ carry and cash generation, the outlook for replacement volumes and pricing as legacy contracts roll off, and the implications for bondholder returns. With refinancing on hold, we focus on what the market is now pricing in and whether the changing risk/reward warrants a position.
Following our work on Morrisons, we have reassessed our view on Asda. The key question is how much of the recent exceptional and separation related costs will unwind and, importantly, how much of that translates into recurring EBITDA and cash flow. Trading is showing some early signs of stabilisation, while the balance sheet retains meaningful liquidity and property backing, but leverage remains elevated and the recovery still depends on execution. We have therefore focused on underlying EBITDA and cash generation rather than relying on pro forma adjustments or further property monetisation. Tracking the cash has raised some interesting findings and, taken together, has given us a clearer view of the risks and ultimately the investment opportunity in Asda.
As is typical for chemicals, performance is volatile and at any time, requires long maturities. Synthomer is a case in point and financing has years before maturities. For as long as the Iran war keeps oil above $100, Synthomer looks profitable, but what will be left when that ends? What are the options then - depending on timing?
Following a profitable short that we exited earlier this year, we have recut our analysis to look forward again. The result is an intricate web of considerations, which we will navigate over the coming quarters.
One swallow does not a spring make, or so goes the saying. If H126 is that swallow, or indeed the beginning of summer is a question well worth answering. The company has been put up for sale at an eyewatering valuation, entirely out of reach based on performance in the last years. Only the pizza is slimmer than the profits.
The bonds have traded up into this event, but also leave some money on the table for those with conviction. On the upside, add a little fantasy and the gap narrows significantly. On the downside, well, we’ve already been there once. So how much fantasy do we dare to add? Having discussed the name thoroughly on the desk, we have changed our positioning.
At 76c, we have spent time reassessing Rekeep following the recent results and the pressure on EBITDA. While leverage has increased, the resilient backlog, cash generation and 2029 maturity remain important considerations.
We have also looked closely at the potential asset disposal and its implications for the bonds. Taken together, this work has given us greater conviction in our view of the credit at current levels, with the underlying business fundamentals remaining the key driver.
That TC has been reaching an inflexion point on growth is an important milestone we have spent some time to understand in more depth.
However, the more important question was how much fresh cash would be required to achieve sufficient growth to put anyone back into the money and why. Having come to a conclusion, the investment thesis became very clear.
We have been looking closely at VMO2 to assess the valuation of the underlying business and where value sits across the capital structure. We have spent particular time on the Nexfibre transaction, breaking down the key moving parts to understand its potential impact on the overall value of the business.
While the transaction is an important catalyst, our investment decision ultimately rests on the underlying fundamentals rather than the transaction itself.
Considering our strong views on Stonegate, we are thinking of Punch very differently. The momentum is similar and is similarly distributed, and our forecasts are driven by similar metrics. However, the balance sheets are very different, as are the internal legal structures and potential game theory. So we find it notable that with such different assessments and investment theses, the positioning eventually looks similar.
Morrisons’ Q3 results reinforce our view on the operational trajectory, but our updated analysis focuses on a potentially more important credit catalyst: property monetisation. Management’s latest commentary gives us greater confidence in that direction, and our work focuses on the liquidity and interest coverage impact of various transactions.
We take particular care in assessing the game theory between the different participants in the capital structure and the options available to each, which provides a useful framework for assessing the potential paths to deleveraging. Overall, this analysis bolsters our existing view on the credit and highlights additional avenues for value creation.
As creditors are being wall-crossed, we have revisited our positioning in the name and how we see the negotiating positions shaping up. Recent results lend some perspective and were crucial in adjusting our forecasts ahead of this period, but now that we have the trajectory, the deciding factor from here is the liability side of the balance sheet. Those fronts we expect to line up unchanged, and we have not changed our positioning in the name.
The signals are queuing up, and the math is chiming in. We have dug deeper into the market, its cyclicality by sector/region and its economics. We have rebuilt our analysis of Modulaire from scratch to try to flex our integrated fleet-based model to suit the market, but it won’t do. So we have taken not one, not two, but three positions in the structure to capitalise on our scenario tree.
Like margarine, Flora bonds evoke strong feelings – both positively and negatively. We have refreshed our work on Flora Food Group, looking beyond the headline c.7x leverage to assess the durability of the underlying credit and the path to deleveraging. In doing so, we focus on the interaction between EBITDA resilience, cash conversion, liquidity and restructuring costs and peak over the edge at bondholder recoveries if deleveraging remains elusive.
Holding a position in one of the instruments, we have deepened our analysis of the group's operating performance across geographies and product categories, testing the resilience of volumes and pricing in a challenging consumer environment. With KKR approaching its 10th year of ownership next year, we outline the potential paths to an exit with differing outcomes for bondholders across the capital structure.