CMA - Thoughts on new state g'teed facility

Dear All

 Please refer to our analysis here.

 Conclusion:

The news this morning are clearly positive for our position in the 21s. Moreover, we also estimate that the CMA 2022 bond would be covered under our preliminary estimates for EBITDA and FCF for the period. However, we remain cautious on the CMA 2025 bonds.

 Position:

We remain long the 21s for now and are looking at the 22s.

 News:

CMA CGM this morning announced a new EUR1.05b loan which is 70% guaranteed by the French state. The loan is from BNP, HSBC and SG. We believe all three, but especially BNP, have a close relationship with the group. In our recent experience with Loxam with such state guaranteed loans in France, they would normally come at the unsecured level, and therefore pari passu with the unsecured CMA bonds. The loan has a 1 yr + 5 yr extension at the option of CMA, similar to Loxam.

 Forecast:

1) CMA also released a preliminary forecast of a 10% yoy volume decline in 1H 20. This also squares up with Maersk’s 20-25% volume decline expected for Q2 20 specifically, as announced today. As we understand rates net of fuel costs have generally held up (as experienced by Maersk in Q1 20), thanks to the impact of scrubber retrofits on capacity and “blank sailings”, this would mean revenues could be meaningfully higher than our first estimates for 1H 20 volume decline. 

2) As container shipping traffic is by definition diversified in terms of both: geographies and sectors, it may suffer less than other cyclical sectors, such as travel, capital goods, commodities, and air cargo/ground handling, which are typically more restricted in either category.

3) Container shipping has benefitting from some restocking effects during the Feb-Apr period, similarly to other periods of anticipated disruptions such as the intensification of the US-China trade war.

 Juliano Torii