Accentro: Searching for reality.
All,
Please find our unchanged analysis here.
Accentro is inching towards a deal but it is not yet across the line. The company has agreed on an extension of terms with 56% of the bonds. The extension gives Accentro time and the structure restricts the ability of management to fritter away more cash, but it doesn’t address what horrors might be hidden in the Investment portfolio. Bondholders have extracted a price in terms of control of Accentro’s business and scheduled repayments. The structure of the agreement with bondholders points to a lack of belief in management's investment strategy. The amended terms will require a 75% qualified majority to pass, we assess that the 75% will be reached, as the alternative is a restructuring process that could destroy even more value. The cleansing presentation and the exchange offer will offer more clarity and detail. As usual with Accentro the timing is not yet confirmed.
Investment Considerations
At 54c/€ the bonds are trading close to our estimate of value which ascribes zero to the east German investment portfolio. The deal the bondholders have extracted supports our belief that the Investment strategy introduced by management was not something they controlled. Accentro looks to have been used as a parking lot for other firm's bad assets.
- We will look at the exchange documents to assess whether the direction of cash is structured in a way that we feel is not yet reflected in the bonds price. Either way, we do not see any realistic prospect of equity value in Accentro.
The maturity extension cedes a lot of control to bondholders:
- Bondholders will have significant control over acquisitions by Accentro until the outstanding bonds are reduced. The release gave no details as to cash payments/redemptions but this will be either clear in the Exchange Offer or the cleansing presentation.
- An additional three years of maturity (to February 2026) gives Accentro time but not cash to do something with its investment portfolio.
- In return for extending maturities bondholders are offered.
- Accentro will not acquire investment properties until 80% of the 2023 bond is redeemed.
- Restrictions on acquiring inventory property until minimum redemptions are made.
- Mandatory redemption from net proceeds on the sale of investment properties, certain loans and financial investments.
- A cash payment to bondholders at the time of refinancing.
- Further minimum annual redemptions (amounts undefined so far)
- An additional 2% in the coupon.
- A comprehensive security package for the bonds (both) will be put in place.
Will the extension work?
- The bonds have risen from 40c/€ to 54c/€ since the news was revealed. This is broadly in line with our previously estimated recovery value.
- There may some upside for the bonds from current prices if the reality of the exchange offer is as we expect and there is some value in the east German assets.
- Preventing more cash from being wasted on investment properties and instead diverting it to paying off bondholders is good for debt but will be paid for by equity.
- Any upside in the bonds will depend on the exact terms, getting a 75% agreement and getting buy-in from the 2026 notes, which we suspect are in the hands of Caner.
There are still outstanding questions about governance:
- The belt and braces approach to the extension by bondholders underlines the lack of faith in management handling of the business. We think the following three questions need answers.
- Who is making the investment decisions?
- Is there a realistic plan for the Investment properties or are they distressed assets parked at Accentro by others?
- Who controls the 83% of the equity that is held by Brookline (Ganiyev, the banks, someone else?)
Happy to discuss with you all
Aengus