Pasubio - Movement - Positioning

All,

Please find our analysis from earlier this week here. 

The bond movement today has prompted us to re-examine the situation and ultimately cover our short position in Pasubio. We shorted the bond earlier this week at 87%, with our short thesis based on poor Q3 sales and some concerns surrounding the future strategy of PAI. With the bonds now down at 80%, our price target, we are covering our short. 

Investment Rationale:

- We are closing our 3% short position in Pasubio’s FRNs at 80%, locking in a 7-point gain. Our intention was to revisit the position following Q3 results. We had targeted a 15% yield (80%) based on expectations of a downgrade and weak quarterly performance. While we still anticipate soft results, absent a major liquidity shock, we believe the downside from here is minimal.

- Near-term upside appears constrained. The bonds may recover a few points, but material gains before results are unlikely. With a weak outlook for top-line growth, we don’t expect the bonds to trade to a 10% yield in the foreseeable future.

Happy to discuss

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk