Lowell Update and new Mode

All,

Following Lowell’s results las week, please find our updated analysis and model here.

We are remaining long the 8.5% 22s for the time being as we see few triggers to the downside at the moment. 

That said, we are concerned that management continue to find creative ways to suggest the company were CF positive. The reality is that the Replacement Rate does not adequate all the portfolio purchases the company needs to conduct during a year - unless the portfolio write-up is strong enough to compensate. This has been the case in recent periods, but is not guaranteed going forward. 

Management could - if it were a priority - save costs and turn the company CF positive. But while bondholders are financing the growth of the company, Lowell remain a bet on the market not turning negative when the company needs fresh cash. With the ABL facility amortising and given the current rate of purchases, the company may need to raise further debt in less than 12 months. 

Moreover, the SUNs have their next call date in November, making them cheaper to substitute with Senior Secured debt - thus layering the bonds. 

We are therefore looking to keep a watchful eye on the business and will try to anticipate / sell into its financing activities.

Wolfgang