Douglas - Thoughts
All,
Please refer to our unchanged analysis here.
Yesterday’s Reuter’s article made quite the impact on the bonds this morning, although prices are largely back. However, the only news we found in the article was that CVC were ready to commit fresh cash if needed.
Clearly, CVC should have an interest in defending its investment, but we don’t quite see through the individual funds well enough not to be thankful for some hint in one or the other direction. With the second lockdown lying squarely in Douglas’ all-important Q1 (ending Dec. 31.), we assume fresh cash will indeed be needed. The only question is (and has been for a while) what form the deal will take.
X-holdings and par holders: The 2LNs could receive some support from x-holdings in the SSNs, but we understand that x-holders make up a mere 15% or so and that both issues are still dominated by par holders. Moreover, given the small proportion of SSNs vs loans, the 2LNs are unlikely to receive much support from sr. creditors.
Small restructuring: The 2LNs are small with only E335m on top of a E 2.5bn debt pile. On the one hand, that means that they’d struggle to defend themselves in a restructuring. On the other, they are simply not worth the upheaval of a full-blown restructuring with D/E swap or similar (also think new German law, Luxcos, COMI shift and Brexit).
Big restructuring: For CVC therefore a restructuring only makes sense when attacking the SSNs and loans as well. However, those are trading in the 90s and would require a huge capital injection. Meanwhile, CVC would still risk losing control altogether.
No restructuring: To avoid this risk, CVC would be best off simply injecting fresh cash and asking creditors to roll into longer-dated contracts. The SSNs trade like they’d accept it and the 2LNs - to the extent held by par holders would accept it too. The strategy would be vulnerable to holdouts but should cost CVC by far the least amount of fresh cash.
So the costs and risks associated with testing the new German scheme are likely to outweigh the potential gains from aggressively restructuring a mere E335m. We, therefore, expect CVC to propose a sensible solution, to which the 2LNs can consent.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003