Intralot - Thoughts
All,
Please refer to our unchanged analysis here.
While we are waiting for feedback from the 24s camp, here are some first thoughts:
1) The deal represents the low end of the achievable for the 24s.
2) The proposal layers the 24s, but circumvents any requirement on the 24s to agree to the deal. Thus unless the 24s exchange for US equity in droves, it leaves the company over-leveraged and in our view on course for another restructuring in 2024.
3) The 21s are receiving at least 80c/E in new senior secured debt.
4) We are unsure why the 24s would want to exchange into a 49% minority stake of the US entity if their status as on the one hand, senior creditors of the group implicitly hands them 100% of that value already and on the other, it would remove any optionality from international operations. The only two scenarios in favour of exchanging that come to mind are:
a) A future sale of the US subsidiary with a subsequent restructuring of the remaining group, which would cash our such shareholders, but leaving group creditors to negotiate. Typically, however, we’d expect such events to occur in the reverse order, in which case group creditors should be better off than US shareholders
b) The recognition that the group is sub-scale and/or unable to carry or restructure its group cost base. Exchanging for a US minority stake would allow group creditors to shift structurally sr to the Greek HQ costs. However, the extensive intercompany transactions between the US sub and the Holdco cluster, as well as the Inc’s dependency on centralised R&D have us doubt that we should be exchanging for such equity now and give up any stick stemming from creditor status.
5) In the mid-40s the layered 24s are therefore fully valued in our opinion and are trading on par with IGT equity. That said, we do recognise significant idiosyncratic upside (and of course downside) potential in both the US subsidiary and the international operations.
We retain our 3% of NAV position in the 24s for the time being as we await further detail.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003