Transcom - Pending Maturity - Model Update

All,

Please find our updated model and analysis post Q3 numbers here.

Q3 results were marginally better than expected, supported by effective cost control that contributed to higher margins. Revenues were slightly below projections, but overall performance was broadly in line with, if not modestly ahead of, our forecasts. Nevertheless, the underlying issue remains unchanged. A standard par refinancing remains unlikely given the increase in required coupon rates and the projected fixed charge coverage ratio associated with a refinancing. The Q3 results provide some positive momentum that may support an amend-and-extend process, which remains our base-case scenario.

Investment Considerations:

- Given the weak asset coverage and relatively high leverage compared with listed peers’ enterprise value multiples, we are not taking an active position at this time. We will continue to monitor developments closely.

- We exited our position in late August at 78% following disappointing Q2 results. Ultimately, though, our decision was driven by the view that a par refinancing was improbable. Despite the modest improvement in Q3 performance, the likelihood of a traditional par refinancing has not increased.

- The bonds have risen to 85%, potentially due to short covering, but downside risks persist. We had previously expected Altor to contribute a modest amount of equity to facilitate a refinancing; however, it now appears possible that this may not be necessary.

- The downside risk has lessened somewhat due to the recent operational rebound, although an assertive stance from the sponsor could still lead to bond prices declining by 10 to 15 points.

- The upside remains approximately 15 points in the event of a par refinancing, though this scenario is considered unlikely. A constructive amend-and-extend outcome, with a coupon in the range of 7 to 8%, could provide approximately 5 points of upside.