Intralot loses Bulgaria

All,

The Bulgarian nationalisation of betting services is very bad news for Intralot.

Please find our updated analysis here.

Of its remaining 2019 EBITDA of E ~65m (from the parent’s perspective), Intralot generated E ~13m in Bulgaria. We do not believe that the fees the Bulgarian subsidiaries have been threatened with will pierce any corporate veil to Greece, but they will probably serve to shut doen the Bulgarian business entirely.

Three implications:

1) Our investment thesis that the company could refinance if it reaches sufficient EBITDA and buys back some 24s in the market now dead. 

2) The 21s will continue to trade at their E100m Sr. Sec. premium until Kokkalis decides - or not - otherwise. 

3) Given the continued market volatility in the 24s since New Year, we believe the company has not yet engaged in any large scale market re-purchase of the 24s and will probably have kept its powder dry.

So the bonds are taking a hit (have traded down at the end of last week already). The thesis that the 24s should be more value protected than the 21s continues to hold up. But so far the differential has not collapsed as the 21s continue to bet that Kokkalis will kick the can down the road, given the cash in the company provides him with a 4 year option. We continue to believe - and now more so than before - that this option will be expensive, given the E40m+ interest bill that would persist. 

Bonds are now effectively valuing the company at 5x 2019 EBITDA less the E13m Bulgarian contribution - i.e. assign no benefit to the company realising any of its admittedly vague plans.

Various term sheets have been sent from single parties to the company, which should help with the March/April audit. And Kokkalis may decide to let the bonds simmer or a little longer before presenting any plan. 

Wolfgang