Klöckner Pentaplast - No Smoke, No Fire - Model Update
Dear all,
Please find our updated analysis of Klöckner Pentaplast here.
Where there is no smoke, there is no fire, or perhaps where there is no queue, there is no value. In Klöckners case, that means that we can’t see anyone lining up for the equity of the business, so surely it must be worthless. We have reverse engineered what must have happened over the last year to model a case close to the scant budget KP supplied the other day, and we have reflected the restructuring in our recap section. Maybe the above proverb does hold both ways.
Investment Rationale:
- We are not participating in this restructuring. At 42c/€ we would already be paying 20% towards the value of the equity, which, given the lack of fundamental disclosure for a year now, we find hard to justify. Tellingly, nobody wants to own the equity - neither the new money nor the sponsor.
- Beyond the Ch11 process itself, the New money sits neither Super Sr., nor is it overly attractive for a mere 5% PIK on top of regular interest while in the process. Thereafter, it pays the same and ranks equally in the exit facility. Even if we were in the credit and had provided bridge financing, we wouldn't participate.
- 1L creditors will receive a total recovery of approx. 65c/€, made up of 36c/€ in new Exit Facility debt and 30c/€ in new equity. So the current price includes 6c/€ for that equity already. The 2LNs recover 6c/€ in new debt, and the shareholder receives nothing.
- On the basis of the budget and the pricing of the debt, there could be excess cash flow following the exit from CH11. Interest coverage is set at approx. 1.5x. However, we have not had results for one year, and our confidence in the fundamental business situation is running too low to "bet" on that now.
Key Conclusions:
- This restructuring bears all the hallmarks of a defensive play by a SteerCo, which has been in the name from par and is looking for mere damage limitation. From an opportunistic perspective, there is little to get excited about. We lack the most fundamental information on the health of the business itself, which doesn't allow for much of a directional bet on recovery (Recapitalisation, DCF, Model).
- Despite forecasting >55% cash conversion (down from 60% as revenues drop), Debt Capacity (gross) lies around 35-40% of the current 1L layer (DCF). However, considering the substantial New Money, the balance sheet remains overleveraged even after this restructuring. The New money will pay a 5% PIK commitment fee, the 1Ls and 2Ls will respectively receive 36% and 6% reinstatement p.p. with the New Money and 100% and 0% of the equity. Shareholders are wiped out. (Recap Table).
- Inferring from the FY25-30 budget, our expectations were not low enough. Pharma revenues must have disappointed again, suggesting a secular, rather than cyclical problem. (Industry / Company).
- Only about one-third of the Pharma, Health & Durables segment is true Pharma; blending it with other activities risks overstating enterprise value (Company).
Refinancing Background:
- KP first tried refinancing in the private debt market in 2024, but to no success. Following extension of the SUNs in early 2025, the A&E took longer than expected and suppliers became nervous. Reports surfaced in August '25 that KP's suppliers were beginning to withhold deliveries as the company had amassed €80m of overdue payables. With only 6 months to go to maturity, KP urgently required a bridge financing, which set the restructuring in motion.
- The company applied for a CH11 process in Texas in Nov. '25. The plan involves a total New Money investment of €350m, of which €134m will pay down the Bridge. 1L and 2L will roll up 36 and 6 c/€ respectively into a pari passu position with the new money, and the remainder will be written off. 1L lenders will own 100% of the equity. At present, there is no update on the underlying business.
Key Value Drivers:
- A 1.5x FCCR on the exit looks like there could be value in the equity. However, we have too little information to base an investment on performance that will be two years away from last reported results.
- Fundamentally, there is a chance that the substitution that we fear from cold-formed aluminium foil laminate turns out overestimated and that PET retains its market share in the blister packs.
- Any further pivot of capacity towards US Pharma would drive the company's value.
- A return of approx. €100m of WC following the Ch11 proceedings. KP will hold a projected €300m of cash on BS after exit, which could drop by a near €50m in professional fees. From that, it could pay up-front all its outstanding trade creditors, which in turn might convince some of them to return to normal payment terms. Oftentimes, however, this process can take years.
Key Risks:
- If PET blister packs are really to become a low-cost option to higher barrier, recyclable cold-formed aluminium foil laminate blister packs, then there will be no point in owning this new equity.
- The lack of information on the last financial year makes any serious investment near impossible to justify.
- Comps are trading with EBITDA margins in the 20%s range. KP has not done so as long as we can look back. The Pharma division contains a segment previously dubbed Specialities. So we may not be comparing apples with apples, and the upside may not be as great. Also, the strong trading at pharma-oriented competitors sat oddly with the alleged sector-wide pharma de-stocking narrative.
- In the absence of a shareholder, we consider the process risk from this CH11 contained.
- We don't trust management as far as we can throw. For four years, we have heard the story of de-stocking.
Here to discuss this name with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk