Transcom - AI Risk - Positioning

All,

Please find our updated analysis on Transcom here.

We previously believed the Company had no viable option for a full refinancing and that an Amend and Extend (A&E) represented the only realistic outcome for all stakeholders. We were therefore surprised when Altor provided €50m of equity (we had assumed €20–30m) to support the A&E process. With over 80% of bondholders committed from the outset, the transaction closed successfully and extended maturities to 2030. With the bonds now trading in the high 80s, we believe the risk-reward merits re-engagement.

Investment Rationale

- We are initiating a 5% long position at 89c in the FRN 2030 bonds of Transcom. We previously held the former bonds and exited following the Q2 2025 results. Our decision to exit reflected two factors: the anticipated revenue inflection did not materialise in Q2 (it emerged in Q3 and Q4), and our base case A&E assumed only a modest equity contribution from Altor. Under that scenario, we saw a meaningful risk of an aggressive sponsor stance, which could have pushed the bonds from our exit level of 78c into the 60s.

- Bondholders ultimately secured a materially better outcome than expected, including a 15% paydown funded by a €50m equity injection from the sponsor. This transaction reduced leverage and extended runway, allowing Altor additional time to execute an exit.

- Our long position rests on limited downside. We estimate downside at c. 75–80c, or approximately 10pts from current levels. At 81c, the bonds offer a 10% running yield. Given that the Company maintains interest coverage, this yield provides a valuation floor. In addition, limited debt sits ahead of the bonds (primarily lease liabilities and modest RCF usage), positioning the bonds as the fulcrum security.

- Upside derives from both pull to par and the PIK component. Altor faces increasing incentives to exit ahead of year-end, as the PIK steps up to 3.25% from 1.75%, alongside a 101% call price post-December 2026. We expect Altor to actively pursue an exit; however, any delay results in further value leakage to bondholders via the higher PIK accrual, providing compensation for time.