Antolin - Class Wars - Model Update
All,
Please find our updated analysis of Antolin here.
Advisors are hired, and bonds are somehow organised, but have not yet heard from Houlihan. We have always said that this is one of those cases where pari passu creditors may not end up pari passu. But a deeper legal analysis has sharpened our thinking and what we see as the bondholder’s defence tools - from the family and from one another. In summary, the family’s chances look better than we thought, again. It’s a chance to provide fresh cash, but go PIK with what you buy today. It isn't an equity story.
Investment Considerations:
- We have sold our long / short position in the '30s and ‘28s, respectively in early May and have not entered another position since. Already one A&E down, this capital structure has to be reorganised, leaving less debt on the balance sheet and reducing the interest burden at the same time.
- Absent an equity story, we see a consensual deal as the most likely outcome, in which the family retains control and creditors leave a large PIK outstanding. The family carries significant nuisance value and their endorsement of a deal would boost morale and carry less continuation risk with the concentrated clientele. That is worth paying for and as long as the equity remains far enough out of the money, there should be a deal zone.
- Given that aside from the juicy fresh cash the remaining bond stub should be mostly PIK paper, we feel no rush to get exposed ahead of the deal. The company has not turned around in nearly a decade, so it won't suddenly do so in this environment. If anything, if we were management, we'd first be dishing out a lot of bad news to everyone to make them gullible. There is time.
- The equity story of a European automotive supplier is not attractive. So in a restructuring the fresh cash will want to go super sr. Meanwhile the family has connections and significant nuisance value. That means there is a path where the family retains control of an equity slice that is far enough out of the money, behind a big PIK that will trade at a discount out of the gates. Some of the new money could be used to sweeten the deal for minor creditors (Recap).
- A coop holding at least 25% of each bond issue could defeat a plan aimed at dividing creditors into three classes and driving a x-class cram down. Still, the family might just retain control (Legal).
- Preparations for a restructuring are under way. Bondholders have reportedly organised, while management has retained heavyweight advisers. Liquidity is becoming the central issue: management guides to only ca. €30m of adjusted FCF, and failure to refinance the 2028s would spring the maturity of the RCF and bank debt to October 2027. Sweeping bank covenant waivers for the year provide temporary relief, but the balance sheet can't carry the debt (Current Trading).
- Operating performance has possibly stabilised, but at an insufficient level. Q4’25 and Q1’26 revenues appear distorted by timing effects, yet the combined run-rate suggests little underlying improvement. A cyclical trough in global light vehicle production could support a modest margin recovery (+100bps bull case), but European door demand remains weak and the growing order book appears more indicative of delayed model launches than incremental demand. In Asia, dramatic share losses by Western OEMs can't be offset with other regional growth (Current Trading).
- Liquidity has deteriorated materially. Most credit facilities are now drawn, leaving less than €60m available. While this does not yet resemble a classic pre-restructuring draw down, The €142m net proceeds from the India disposal have gone faster than they came (Current Trading).
- Automotive suppliers have poor cash conversion. Normalised CapEx (~5% of sales) is difficult to reduce because the manufacturing footprint does not shrink in line with volumes, while weak EBITDA magnifies the burden. Achieving the ~250bps margin uplift required to bring Antolin in line with its peers remains a long-term project, even after nearly a decade of trying. (Model).
- Since acquiring the Magna International US operations in 2017, Antolin has not exceeded 7% EBITDA. Asia, though more profitable, is small and only partially owned; NAFTA drives underperformance. Tariff exposure appears manageable operationally (US/Mexico plant split, 70% US utilisation), but customer concentration—particularly with Volkswagen and Stellantis—materially constrains pricing power and recovery prospects (Company; DCF).
Key Value Drivers:
- Blocking Minority: A coop comprising at least 25% of each bond issue (doable), will protect against a plan applying a cross-class cramdown on one of the bonds. Smaller bondholders should draw some comfort from the intercreditor agreement that puts non-pro rata recovery out of the bondholders' own hands, requiring the agreement of each sr. creditor representative.
- Asset Sales: Antolin has been able to sell assets and probably holds more that could raise liquidity for the going concern.
- JVs: Entering into JVs with Chinese suppliers looking for an entry into the European market would likely fund a further pay-down and permit a more efficient utilisation of assets.
- S&P are forecasting a bottoming out of Light Vehicle Production Volumes in 2026/27 (or is it the usual jockey stick taking shape?). If so, the margin uplift from cost cuttings might begin to shine through.
- Exit to Apollo's Forvia? Would need an attractive discount to Forvia (priced in) and the blessing from VW and Stellantis (and a good hand full of other OEMs).
Key Risks:
- Divide and conquer: Spanish composition plan successfully dividing bondholders into two classes with Banks in a third class. The 28s feel especially vulnerable.
- Consolidation: European OEMs won't be able to nurse all their suppliers through this difficult time. Contrary to their usual strategy, they may decide to concentrate some supplies into higher-volume players that can lift more scale efficiencies.
- Doors: Management has been describing its ballooning order book and recent sales weakness as temporary and due to platform delays at customers. We could yet learn that it's permanent and see a strong correction in what can be described as live orderbook.
Looking forward to discussing this name with you,
Wolfgang
T: +44 203 744 7003
www.sarria.co.uk