Europcar - update to game theory
All,
M. Bourboulougx has been appointed and while advisors are signing NDAs in expectation of the IBR from 8Advisory this morning, some further thoughts on game theory and positioning below:
Holdco Notes - large but vulnerable:
- The overall expectation is that the RCF-only group will be aggressively positioning itself as the more comprehensive solution. In total size the group of ~E350m pales in comparison to the ~E1.2bn or so in the X-Holder group, but does not under all circumstances need to compare on that metric as in its view - and possibly in 8Advisory’s most of the bondholder group is well out of the money. For comparison, the X-Holder group contends that it holds a 1/3 blocking stake in the RCF, which should add up to E220m, thus smaller than the the RCF-Only group, but clearly very significant.
- But the bargaining chips are all with the Struct. Sr. RCF (mostly lent to pooling vehicle Holding S.A.S.) and the fleet financing ECFs. The value attached to the holdco bonds themselves is under pressure. Also, the RCF-Only group has signalled readiness to take a haircut and inject fresh cash. So we expect a strong challenge to the holdco notes and a company seeking to play off both sides (as it ought to).
Fresh Cash request may be higher than expected:
- Although there is not yet any information out on the amount the company may be seeking or on details within the IBR, our feeling is that the fresh cash request will be maximal, given ample supply of fresh cash indicated by both the RCF-Only group and the X-Holder group and the uncertainty going forward and Mme Bourbouloux’ likely unwillingness to sully her record with a Sauvegarde that needs re-opening and the fact that any material equitisation causes crippling dilution to shareholders anyhow.
EC Finance Notes:
- Overall we think these notes are still unlikely to be touched and play a more important role as king-maker between the RCF and the Holdco Notes. The EC finance notes are some 40% controlled by the cross-holder group, while a new group has formed (we understand around Canyon and DE Shaw) controlling some 20% or so. There has been much confusion around the ECF-Only group recently.
- We also understand that the ECF-Only group has not voted in favour of the waiver and is possibly not yet recognised/paid by the company (please let us know if you hear otherwise). But it may be worth keeping an eye on it and understand its agenda. All notes (including ECF) will need to sign another waiver when moving into Sauvegarde.
Notes valuation:
Our valuation remains in the 30s for now, but a larger fresh cash demand could drop that. More importantly, rather than fundamental value, we fear that the notes will be driven by the negative momentum of a larger than anticipated fresh cash request, coupled with a very aggressive start by the RCF-Only group. We, therefore, see the Holdco Notes moving into the 30s in the coming weeks.
Positioning:
We are not taking another position at this time. The Holdco Bonds are an incalculable bet for now, the RCF and ECFs in the 90s don’t really get the blood pumping and the former has largely traded anyway. The latter may still be subject to a discussion on the desk later this week.
Wolfgang