Ardagh Group – Endgame
All,
Please find our unchanged analysis here.
The restructuring of Ardagh Group (AG) is finally nearing completion. It is largely as we expected at the beginning of the process, with the SSNs remaining whole and the SUNs being equitised. The transaction has a large stick for dissenting SSN holders, and we expect the 90% support rate to be reached. The SUNs get 92% of the AG equity, and the shareholders of Yeoman get $300m plus 8% of the AG equity.
Investment Rationale:
- We are not invested in the capital structure at present, having been short the SUNs.
- SSNs: The coupon of 9.5% and the exchange price of 80c/€ imply a Yield of 11.5%. We see the SSNs as covered by asset value. At 5.1x levered, the SSNs will trade tighter, but not immediately. We see upside of 12 points (c10% yield) and 5 points of downside (12.5%).
- The SUNs will receive 92% of the equity in Ardagh Group. We see undiscounted FV as 60c/€, which would mean a yield of 19% (ignoring the PIK component). The bonds are trading in the mid-40s, so there are 15 points of upside and 10 of downside.
- The New Money has been raised by $300m (to $1.2bn); this additional cash will fund the purchase of Yeoman from its shareholders (including Paul Coulson).
- Ardagh Group will remain the Beneficial owner of the Ardagh stake, so there is no triggering of the Change of Control clause.
After a lot of argument, the proposed deal is largely as we expected:
- AG will likely be able to complete a consensual agreement.
SSN holders will exchange into a new 9.5% cash coupon second lien, 12/2030 bond. Seventy-five per cent of SSN holders are already signed up. Holdouts risk being bound if Ardagh reaches 90%, and being exchanged at 80c/€. We expect that this is coercive enough for potential holdouts to think twice.
SUN holders ($2.4bn) will be entirely equitized and, in return, receive 92.5% of the equity in AG. Those signing up to the agreement will get 30% of the 92.5% Yeoman equity. We are sceptical that there is significant equity value at AG, but the SUNs have already had 90% sign up for the agreement.
PIK holders will get 7.5% of the equity in AG. Only 60% of the PIK holders have signed up so far, but if the 90% consent requirement is not met and a court process is required, we would expect the PIKs to be crammed down.
- Creditors need to sign up before 11 August 2025 to receive the early bird fees. The Exchange offer will launch on September 2, 2025, with the deal expected to be completed by September 30.
- The AMP, Trivium and African assets will be caught in the security net.
- By leaving the AMP stake in AIH (and a direct subsidiary of AG), the CoC is not triggered. Previous plans had proposed moving the asset to a new, separately capitalised entity, majority owned by Permitted Investors. The AMP assets will no longer be sold by AG, so there will not be a CoC.
- Management projections are above ours at $4bn vs $3.2bn; the difference is largely down to a much quicker rebound of EBITDA. We are sceptical about AG getting back to 2024 levels. But it would represent the difference between par recovery and our estimate of 60% (after three years).
I look forward to discussing this with you all.
Recap Presentation Ardagh July 25
Aengus
T: +44 203 744 7055