CMA CGM – comments on new 2026 EUR bond deal
All,
Please find our unchanged analysis here.
According to market sources, CMA CGM is planning to issue a EUR525m 2026 bond deal. This follows a press release from this morning notifying investors that the company’s main IT systems are returning to normal, following the cyber attack of 29 Sep 20.
The level of the existing EUR750m 2025 bonds, which are the are the key reference in the bond curve for the 2026 deal, have gone down a few points over the past few weeks after peaking in the mid-90s in early September. The momentum faded in the general HY market since then, while the double bad news of the EUR50m stake in Dubreuil Aero and the cyber attack impacted the bonds. This still leaves the 2025 bonds at around 7.5% YTM, which would suggest a coupon no lower than the high 7%s/low 8%s.
As we previously discussed, a similar cyber attacked suffered by Maersk led to around USD300m of losses. If we incorporate that number in our estimates, we would estimate a successful EUR525m bond issue could lead to CMA CGM having a USD1.4-1.5bn of excess cash reserves after accounting for its 2020-2022 maturities. This would leave a decent cash cushion to cover any unexpected business weakness during the period leading to the 2025 bond maturity.
With the sector performing much better than expected this year, on the face of the coronavirus and IMO 2020, as previously discussed, CMA CGM is rightly being prudent and taking advantage of a market opening for high coupon issuers. We do not see the business momentum-changing for the next 6-9 months, but afterwards, the significant usual volatility of the container shipping sector is likely to play its part. In our estimates, CMA CGM generates more than enough FCF to cover its interest payments at the current level of EBITDA.
We currently have a long position on the 2021 and 2022 bonds, which even before this deal should already be plentifully covered by both CMA CGM’s cash reserves and management’s incentives to repay them. We currently do not have a position on the 2025, which we see as a more difficult fundamental call on the sector’s ability to maintain pricing discipline in an otherwise very commoditized sector.
As always, feel free to reach out if you want to exchange ideas on CMA CGM.
Juliano
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