Boparan - Thoughts on a refinancing

All,

Please find our updated analysis on Boparan here.

On the subject of refinancing:

On the one hand, we have little doubt that the company will substantially achieve its heavily adjusted EBITDA goals. Boparan is one of the most successful distressed names of 2019, having achieved a turnaround of its operations in 2020 despite the pandemic. On the other, we have the strong suspicion that some £25m YTD of the improvement have come from reduced purchases (pricing most likely) from its largest and affiliate supplier Hook 2 Sisters. So we think the market stands generally ready to refinance the bonds, but: 

1) the new bonds would likely be cheaper if more of the £40m of PF adjustments were to annualise into actual EBITDA. Timing is limited, but extending the RCF and off-BS operating lines should be possible, which could buy the company time. Accounts are usually due in November, so with some discipline the company may have Q1 results ready, which should account for a fair bit of PF annualisation. Maybe it’ll be enough and we see a refinancing before the debt becomes current.

2) the refinancing would be greatly helped if the company could commit to tighter governance and close its unaccountable leaks (via rent and affiliate purchases) to Amber REI and other parts of the Boparan empire. We doubt however, that the Boparans would be ready for that, given the restrictions it would possibly place on cross subsidisation and the fact they’ve avoided it in the past. 

3) previously announced CapEx plans in Europe and the new pension contribution schedule are likely to place renewed CF demands on the company over the lifetime of the coming bond issue. Those outflows could be carried comfortably if current margins can be maintained. It’s only that historically they never have been for long.

Ultimately we remain convinced that at 2x PF Adj. Interest Coverage the refinancing will be coming - one way or another - and therefore remain long the GBP bonds unchanged with 5% of NAV.

Do reach out to discuss.

Wolfgang