Accentro - Finally
All,
Please find our unchanged analysis here.
We are finally seeing the restructuring that Accentro needed two years ago. The providers of the Super Senior New Money will not only be super senior, but will also have 86% of the equity. The SUNs will exchange their existing notes for SSNs and a deeply subordinated note; they will no longer be subject to a haircut but will not have any equity upside (which will accrue mainly to the providers of the new money.
Investment Rationale:
- We are not participating in the capital structure until we see some audited numbers (likely in Q4). Ad Hoc committee members may have been given more comfort on valuations, but Accentro has let down investors too often in the past.
- Using management’s estimates of asset value (€556m), the value of the existing SUNs is around 31c/€ out of the box (21c from the reinstated notes, and 10c from the reinstated SUNs). The existing SUNs are trading at around 40c/€, but we do not expect there to be much liquidity.
- There is no initial haircut for the SUNs, but 65% of their bonds will be exchanged for PIK-only subordinated bonds.
- The €77m SSSNs are money good. The SSSNs will get 86% of the equity in Accentro, but we are sceptical that there is any equity value unless the real estate market strengthens significantly. We expect asset sales will be at a discount to book value.
- With 80% of SSNs signed up and a StaRug procedure planned, approval of the recapitalisation is very likely, and the company is targeting the end of September 2025.
- We will look again if assets like Werder Weg (€100m GAV) can be sold at or above book. So far, this sale is overdue by a year.
- Whilst the immediate upside is limited, in the longer term, we see significant potential in the underlying assets, particularly the Inventory in Berlin. We will review once some audited numbers are published after the recap has been completed.
Restructuring is comprehensive:
- Total asset value is €556m, but debt will be €585m.
- Existing SUNs will receive 35c in new 2029 SSNs + 65c in 2034 SUNs. We estimate the market value of the package at 32c (vs a current price of around 40c).
- The New SSNs will have a 7% cash coupon + 10% PIK, and the SUNs will have a PIK coupon of 15%.
- There will be an SSSN of €77m with a 10% cash coupon + 10% PIK. We would not expect the SSSNs to trade much below par, given they are subordinated only to bank debt at the subsidiary levels. There will be limited liquidity given the small size of the tranche.
- We do not see any substantial equity in Accentro.
Accentro intends to liquidate the investment portfolio by FY27:
- Investment Book valuation is €302m, but we expect some discounts will be needed to shift the assets, particularly as buyers know that Accentro is an incentivised seller. A stronger market should bring that discount down from the 30% seen in 2023 and 2024. We will know more when we see some audited figures.
- The Investment portfolio valuation has fallen to €302m from €322m last August; the difference is likely to be from revaluations (but no data has been provided). We estimate that the East Portfolio is now valued at about €70 m on the balance sheet, along with €31m of bank debt, and we expect it to be still hard to sell.
- The other €232m of investment assets are of higher quality and should be sellable, starting with the Werdauer Weg in Berlin. The Inventory book is due to be reduced, but we will believe it when we see it.
- Inventory Book asset sales are a stated priority for management, but clearing (of tenants) and refurbishing buildings is a slow process.
- Accentro expects to have €164m of Inventory assets at FYE 25, and to sell €48m in 2026, with a further €50m+ in inventory sales planned in both 2027 and 2028. Sales at this level would represent a significant increase in the pace of sales, and we are sceptical about Accentro achieving this target.
- From 2027, some new inventory investments are planned, with an eventual portfolio size of €85m => expected equity of around €40m.
- There is potential upside in our valuation from improvements in the Real Estate market (particularly in Berlin), leading to asset sales closer to or above current book value.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055