Graanul - comment

This is broadly the deal we were looking for - safe, perhaps for at least a token of shareholder contribution. Absent any information from Drax et al., neither shareholders nor creditors were going to give up any position. Graanul has proposed an amend and extend transaction where the bondholders cave and Apollo, the sponsor, retains 100% of the equity. 50% of bondholders have agreed to this proposal, allowing for the reduction of the 90% supermajority requirement to 75% under a UK scheme. If 75% looks achievable, other bondholders are likely to accede to the agreement. 

The deal involves a partial paydown (c.9%) from cash on the balance sheet, coupled with a 3-year extension. The coupon will improve to 8.5% with enhanced call protection. Early consenting bondholders will receive 1% upfront fee and an additional 1% capitalised consent fee. Notably, the transaction does not include any new equity injection. Leverage remains unchanged, as the partial repayment is balance sheet-funded, and the higher coupon will weigh on credit metrics. The early consent deadline is set for 7 August.

We remain cautious on Graanul’s operational outlook and have recently considered shorting the bonds, but had held off until after this transaction. Our view has not changed, and we will be looking to short this name post closing, subject to borrow.