Intrum - The lesser evil - Positioning

All, 

Please find our unchanged analysis of Intrum here.

The plot is thickening that Intrum can deliver some form of A&E plan without diluting the equity as much as we were expecting. We hear that a majority of creditors may be fine with just a simple A&E. To be sure, we would find that a wasted opportunity, madness, even if we are not expecting much value in the shares. The threat is clearly that Intrum do nothing and the front-end layers the back-end. So we understand that the middle-to-back-end holders are looking for a deal / the lesser evil. So we must react to it. 

Investment Rationale:

- Our Intrum trade has been very profitable, but it is time to take some chips off the table - possibly early. The developments we believe to be observing are not what we were expecting. 

- We are halving both, our long position in the 25s and our short in the equity - each deeply in the money.

- We think the bonds are fully valued here and that if creditors settle for a holistic solution with a common future maturity (such are the rumours) the short end will transfer value to the long end. However, we are not sure if the bid/ask spread on the bonds makes a switch viable now, so with the remaining half we’ll just stay put. We do not perceive much fundamental downside here.

- If the bonds choose not to touch the equity, the latter should spike. This would not be good for our short position. Fundamentally, however, we remain of the view that the shares are worthless. So given the relative difficulty some of you experience in shorting the equity, we will hold on to half of our current position, or close to 1% of NAV.

Time Line and Process:

- We are looking forward to receiving some form of plan later this month or early next, to allow the company to implement any solution in time to include the 2024s. 

- The 2024s will be looking to hold out against that kind of proposal, while the group that is proposing this A&E should be looking to bind them. 

- The only way to bind the 2024s in such a deal would be a process of some sort, which could be delivered in Sweden or even England if the company and a working majority of the bonds agree on the plan.  

Looking forward to discussing with you,

Wolfgang

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