Mobico - Q&A
Dear All,
We were very pleased with the strong attendance at our latest Live Discussion – thank you for joining us!
It was great to see your engagement throughout the session. We even ran slightly over time to make sure we addressed as many of your questions as possible.
As you are aware, we are bullish on Mobico over the coming 12 Months. We have discussed a variety of fundamental reasons, including significant asset cover - be it from buses or going by subsidiary (ALSA), but the most striking statistic to us is the top-down view of the scale of the task. Mobico has €1 of cash for every €2.5 it'll want to reschedule. That’s a lot of flexibility.
Below is a summary of the Q&A. Please contact us if you have any more questions.
How will the economics of the shift to franchising impact UK bus EBITDA? Do you have a view on the potential to sell buses and depots to West Midlands as well as value? Is there a confirmed UoPs for the NASB sale?
Only gradually. The effect would manifest itself only after the recapitalisation we are envisaging. We imagine those auctions to be competitive. Revenue risk would remain with the authorities and bus companies would earn a cost+ revenue, which should carry smaller, but also more stable margins.
If you are winning those auctions, then you are defending market share and keeping most revenue, but you should but expect lower margins. If you are not winning them, you should lose market share, but maintain margins.
Everything is pari except the perps? Do they have debt at opco level (senior to the rest)?
Yes. We understand the €101m to be subsidiary debt. Some of that should be leaving the company with the sale of the NASB business, but we expect most of it would remain.
How will the elimination of vouchers impact ALSA? How much of a subsidy do they represent to current ticket prices?
We don’t know the concrete figures. The Multi Voucher Scheme is currently a tailwind. We imagine that in the scheme of things it will be a tolerable headwind.
Do you think the SUNs or bank lenders could challenge using proceeds to A&E the perps?
Not being lawyers, we have found no restrictions in the documentation. They can morally challenge, but we don’t think they’ll want to as long as the amount remains reasonable. A €50m leakage to A&E the Perps should be beneficial even to the SUNs. At the same time a €150m leakage would probably run into resistance. It’ll be a matter of negotiation.
Which financial service companies could they engage to leaseback buses or other assets? Is this really feasible given that if they were to enforce and sell these assets they would flood the market and depress second hand values?
We have not gone so far as to identify third party financial service companies for this purpose. We’d imagine this mechanism more in the context of uptiering existing creditors.
As regards second hand values, the UK would need the same number of buses. And there should be a successor business taking over, which will want to lease most buses.
Overall, however, we don’t think foreclosure is on the menu quite yet.
What is your view on the impact of a potential downgrade on the availability of bonding lines/performance bond (which are required to operate this kind of business)? if the credit rating deteriorates further, could banks stop providing those facilities?
The specific documentation on the RCF is private. But we’d imagine it’s time to renegotiate the RCF anyway, now that NASB is sold. The company should offer a reduction in face value in return for more lenient covenants.
Have you spoken to management about your view on UoPs? How are they thinking about it?
The company has not made a concrete announcement.
Why wouldn't they draw the RCF and tender for the perp if it’s a cheaper source of financing post the coupon step up?
We don't have the amount of bonding lines backed by the RCF, but we imagine them to be significant. So there may not be enough room under the RCF itself. It would also amount to a giant dilution at the unsecured level and leave many unhappy investors to deal with - and deal with them they must.
One alternative would be to draw the RCF and pay down the front end. But that would create an insurmountable wall in 2029 and raise the risk for shareholders. For now Mobico has good asset backing and €1 of cash for every €3 it wants to roll. That’s going to be enough.
Think you'd breach your lev cov if you did that...
Yes, that’s probably right.
Where (below or above 6%)do you think you can get Snr bonds to agree to extend at? Even if you offered a fee.
That’s a tough question. 6% is probably a fair price. If the family invests another €20m to bring their shareholding to 29%, and if you can term out the unsecureds at the same time, then you should get it tighter - 5.75?.
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk