Branicks – The next stage
All,
Please find our updated analysis here.
Branicks has pushed its maturities out and shifted liquidity between itself and ViB via asset sales, although that well is running low as the LTVs are now close. Our core thesis is that Branicks will amend and extend the bonds and the Promissory notes. We expect the inter-company loan from ViB to be extended. The German structure will be a powerful factor in persuading creditors to extend, and an extension may mean introducing a double LuxCo structure to put creditors in a stronger position in the future.
Investment Rationale:
- We currently have a 5% NAV long position in the 2026 SUNs. The SUNs currently trade at 63c/€.
- LTV at the Branicks level is near 60%, and we see fair value at 93c/€.
- To get investor support any A&E will need to show a package nominally worth at least 90c/€ to avoid being classed as a distressed exchange. Bondholders will accede as the German insolvency process is way worse.
- We see 15 points of upside to fair value and 25 points of downside if there are maturity extension issues in 25Q1. However, a German insolvency process is unlikely as demonstrated by the buy-in from Promissory noteholders in the Q124 debt rescheduling, done under the German StarRug process. We see this as the model for the Amend and Extend process.
- We have reviewed our valuations of the assets and are now closer to the valuation levels used by the company. We have applied distress sale valuation in our bond valuation and now expect a par recovery if an orderly sale of assets were to occur.
- We expect Branicks to use some of the >€175m cash we expect at year-end to finance the part redemption and extension of both the Promissory Notes and the SUNs. We expect both to occur in Q225
- SUN holders could be primed by further Senior Secured issuance, but such issuance would be very expensive and likely to trip the ICR maintenance covenant. Bond prices of <65c/€ preclude parri issuance.
Bond recovery could approach par, but it will take time:
- We think the fair value of the bonds is 93c/€
- External sales so far this year have been at a 26% discount to book valuations, and we would expect that the easiest assets to sell have been chosen first. The impact of being seen as a forced seller will be hurting prices. When Accentro was looking to sell assets, it found bids coming in at 30%+ below what management considered fair value.
- We have applied a discount of 35% to the assets of Branicks and 90% to the share price of ViB. We see this as enough in the current market. The equity is still underwater, but if the German market continues to improve and the runway available to Branicks is extended then proceeds will leave something to the equity.
I look forward to discussing this with you all
Aengus
T: +44 203 744 7055