Branicks - Shuffling and preparing
All,
Please find our unchanged analysis here.
Branicks is setting the scene for the upcoming Amend and Extend operation by repaying its VIB loan with an asset swap, which increases the security available for SUN holders. Branicks is struggling to make asset sales as it is perceived as a forced seller, so shifting maturities is an important plank in buying time to allow sales under less pressure. Our distressed valuation of the Institutional business was below that of the loan, so our fair value of the bonds remains unchanged.
Investment Rationale:
- We currently have a 5% NAV Long position in the 2026 SUNs, which trades at 61.5c/€
- There are 30 points of upside to fair value, but if the A&E process was mismanaged, that could turn to 15 points of downside. However, a German insolvency process is unlikely, as demonstrated by the buy-in from Promissory noteholders in the Q124 debt rescheduling. An A&E backed by a StaRug process remains our base case.
- To get investor support, any A&E will need to show a package nominally worth at least 90c/€ to avoid being classed as a distressed exchange.
- The disposal of an asset we valued at €150m (on a distressed basis) for €360m improves our expected bond fair value.
- We have recently reviewed our valuations of the assets, and will do so again after the H1 results. However, we are comfortable that our recovery values are supportable as we have applied a 35% discount to the book, and the company has achieved asset sales at a 20% discount.
- Our distressed sale valuations still point to a 90c/€ recovery if an orderly sale of assets were to occur.
- SUN holders could be primed by further Senior Secured issuance, but such issuance would be very expensive and likely to trip the ICR maintenance covenant. Bond prices of <65c/€ preclude pari issuance.
Institutional Business sale involves no cash movement:
- Branicks will transfer its Institutional Business to VIB. The business value is €360m. The business transfer will satisfy the €300m loan from VIB to Branicks, and create a €60m receivable payable to Branicks. No maturity date has been given for the receivable.
- The consolidated institutional business (including that of VIB) was €427m as of March 2025, which seems skewed towards Branicks as 1/3rd of the AUM is at VIB.
Liquidity at Branick’s level will be tight until asset sales are executed:
- FY 25 guidance for portfolio sales is €500m - €600m, but H1 has been disappointing. There will be one sale (c€70m gross proceeds) completed in July. We expect that liquidity at Branicks will be tight at the end of H1.
- Significant progress will be needed in Q3 to get anywhere near the FY targets.
- Bids are still coming below book value, and management is reluctant to execute on disposals.
- We will update our model after the Q2 results, which are due on 27 August 2025.
- The A&E operation needs to balance the desire to reduce debt and the creation of a forced seller. Pushing the senior secured portion of the debt out, along with the SUNs/Promissory notes, is key too.
An Amend and Extend operation is coming in Q3:
- The SUNs become current in Q3, and we expect an Amend and Extend operation to be proposed.
- We assume €50m in cash is paid to holders = 13c/€, plus 77c/€ in new SUNs with a 5% coupon, assumed to trade at 11% => a package valued at 90c/€. The €50m in cash would require €100m in asset sales (10% external ownership + LTV of 40%).
- All the Promissory notes involved in the 2024 StaRug process have now been repaid, so Branicks will be able to use this mechanism on the €200m Promissory Notes due in H2 2025 and 2026. Between 2027 and 2029, only €50m of Promissory Notes are due.
- The company will need to get the banks to push back some of the €250m of debt due in 2027/2028; given LTV <20%, we would expect the lenders to be supportive.
- The SUNs could be offered a second lien charge after the banks. The shares in VIB could also be offered to unsecured creditors as security (current value is around €180m).
Aengus
T: +44 203 744 7055