Ardagh Group - Swings and roundabouts - Positioning
All,
Please see our unchanged analysis here.
The Ardagh restructuring announcement is imminent, so we are taking off our short position in the SUNs. The restructuring transaction looks likely to play out as we forecast, with no impairment for the SSNs, but with the SUNs being equitized.
Investment Rationale:
- We are closing our 1.6% NAV short in the Ardagh 5.25% 2027 SUNs. The notes trade at 45% vs our entry point of 67%, 13 months ago. Total return on the trade is 25% (or 23% annualized).
- We have estimated the fair value of the SUNs at 43% and we expect the upside to be 2 points from this latest twist. We expect the SUNs to drop on the launch of the restructuring, but would rather avoid the noise around potential short covering.
- According to press reports, creditors have agreed to pay Paul Coulson USD300m to walk away and abandon attempts to retain 80% of the AIH vehicle, which holds the stake in Ardagh Metal Packaging (76% of the equity + USD260m preference shares)
- The additional USD300m of debt will add 0.5x to the leverage at Ardagh Group (up from 5.0x to 5.5x).
The SUNs are trading at Fair Value:
- We currently value the USD2.36bn of SUNs at 43% (AGSA Equity USD325m + AMP Preference Shares USD260m + Trivium proceeds USD421m + AIH equity USD0).
- Coulson is accepting USD300m in giving up an 80% stake in AIH => the equity is worth USD375m.
- We are assuming that the additional USD300m of debt will be at the Ardagh Glass level, reducing the value of the equity in AGSA. What the SUNs holders gain on the swings, they lose on the roundabout
- We have been sceptical about the value of the equity in AIH (the vehicle that holds the Ardagh Metal Packaging stake), but do acknowledge that there is potential upside if the metal packaging business continues to see its equity price rise.
I look forward to discussing this with you all.
Aengus
T: +44 203 744 7055