Europcar - pondering a new position

All,

Please refer to our updated analysis, integrated CF model and recap scenario here.

We like the company. Never mind that we struggle to credibly model the management case per Q3 presentation. But recapitalising the company at both levels in line with its post IPO metrics requires fresh cash of E600m in our model.

Corporate Bonds:

- The corporate bonds therefore are trading more than fairly priced before the restructuring has even started. The two main value drivers for the corporate bonds now are:

- The amount of fresh cash asked by the company

- The relative treatment of the RCF

- Note that the corporate bond's trading price at this time imply a junior treatment to the RCF, for which there are good reasons. But it does not imply a great deal of equitisation of that RCF beyond the portion owned by the X-holders. The more RCF equities, the less of future equity the bonds will own.

EC Finance:

- The EC-Finance bonds continue to trade tight and we think rightly so. These struct. sr. bonds need to agree to any significant plan, but are unlikely to be touched by the fight for value beneath them. While the yield to maturity may not look attractive, there is a good chance that holdouts can force their refinancing or improved terms before the restructuring is over. Earning 6% appears to be the downside scenario.

Timing:

- As regards timing, clearly the first grace period ends in two weeks. However, the complexity of the negotiation is significant and the IBR has not been available for long. We therefore do not anticipate that negotiations have come to a conclusion by end of month. Europcar do however have sufficient liquidity to make the payment and arguably all sides are ready at the negotiating table. So paying the coupon should be perfectly defensible. We therefore assume that at the end of this month we will not see the dreaded scenario of a un-negotiated entry into Sauvegarde, but that the coupons are paid and that negotiations continue.

Positionning:

We may be interested in taking a position in the EC-Finance bonds. Economics are not racy, but we like their uncorrelated returns, upside optionality and downside protection.

Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003