Adler Pelzer - Second time lucky! - Model Update - Positioning
All,
Please find our updated analysis of Adler Pelzer here.
We had been short this name at the end of last year, but this time there is a more concrete set of catalysts, including a relatively hard stop around April 2026, when, failing an agreement, creditors have to prepare for a restructuring. This is another name where bondholders have been throwing themselves at an A&E, and at first glance, it seems possible, but when accounting for the CapEx squeeze management is applying, this name needs a bigger reset.
Investment Rationale:
- Second time lucky! We are preparing to take another 5% short in the bonds ahead of the November Q325 reporting. It's the final six months of negotiation before creditors must move on to Plan B. Any negative Q325 results would almost certainly sink the bonds which will at best get one more (FY25) set of results before negotiations close. We also expect revised EBITDA guidance. We calculate recoveries in cash and debt form in the 60s, in a restructuring and in the 70s or 80s, depending on generosity of the shareholders in a deal. Higher nominal recoveries would trade at lower prices afterwards.
- On the upside, we struggle to see the shareholders approaching the bonds early, since there should be a negotiation ongoing between them. Even if a proposal came, we doubt it would initially be worth more than 95 c/€. As regards a frothy private debt refinancing, the First Brands situation might have cooled off that appetite for now.
- As risk bonds are currently rebounding on the French government coming together after all.
Key Conclusions:
- Adler Pelzer’s has fared better than anticipated, with management tactically managing NWC into Q3 ’25 to preserve liquidity and present acceptable leverage metrics by year-end (Recent Trading).
- Margin expansion through cost cutting despite lower volumes—an outlier in the auto supplier space. Yet FCF is artificially flattered by sub-par CapEx amid late-stage refinancing efforts (Recent Trading).
- The most plausible recap scenario involves diluting the Scudieri family and transferring majority control to the Japanese shareholder in return for a dividend clawback and an additional €40m equity injection to achieve an A&E. The Scudieri's would retain some value and bonds. Investors need to come to a conclusion in the next six months ahead of the October 2026 RCF maturity (Recap Scenario).
- Bondholders could capture equity value via a minority equity stake or a €45m second-lien PIK instrument, though both hinge on shareholder cooperation and a viable A&E outcome (Recap Scenario).
- Under a normalised CapEx assumption of 4.5% of revenues by 2028, equity value shrinks to only half a turn, and leverage capacity to 70c/€ and thus 30% equity exposure in the bonds (DCF).
- Management’s 2025 EBITDA guidance of €240m (IFRS 16) appears unachievable without an immediate and full European and NAFTA recovery from current –6% volume declines. Even with a 1% margin uplift, the FCCR would reach only ~1.1x pre-refinancing, or 0.6x on a normalised CapEx basis—insufficient all but the most desperate A&E (Model).
Positive Catalysts:
- Refinancing of the RCF: It would only buy another six months, but the facility is small. A re-injection of the dividends could pay down the super sr. facility and possibly roll it, but it would burn half the firepower we think needed for a full A&E. So we think it unlikely.
- Offer: So shareholders (presumably the Hayashis) should wait with any generous proposal. Bonds would return to the mid 90s. Never mind First Brands, is automotive now off-limits for private credit?
Negative Catalysts:
- Q325 - Lower Guidance: Unless European and NAFTA volumes abruptly stopped falling on July 1st and began growing instead, we have no way of modelling APG delivering on its EBITDA guidance for the year.
- Q325: A bad result would sink remaining hopes for a par A&E and suggest bondholders must take a haircut. Seeing the strength of the Euro on Antolin's P&L, we are concerned.
- Volumes: Consumer confidence is sinking on both sides of the Atlantic. VW will halt production in two EV plants in October. We have modelled a bottoming out for 2026, but that could be too early.
- Advisors: News of the company hiring advisors would sink the bonds. As the RCF maturity approaches, it is time management think about their duties (upstream loan, etc.) and prepare for Plan B.
Here to discuss this name with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk