Jaguar LandRover - taking two positions

All,

We have spent a significant amount of time initiation on Jaguar LandRover, please find it here.

Given its heavy CAPEX, Working capital unwind and lower vehicle sales, Jaguar LandRover’s significant liquidity buffer is likely not sufficient.  However, given the importance of Jaguar LandRover to UK manufacturing base, its initial low leverage entering the Covid-19 crisis coupled with some flexibility around its future CAPEX expenditure, we expect Jaguar LandRover to avoid entering financial restructuring.  

We are taking a 5% of NAV long position in the 4.5% Jan-26 Euro Notes, and a 3.3% short in the 2.75% Jan-21 Sterling notes.  This ratio is close to cash neutral, with a positive running yield, and overall long exposure to the name in the scenario where government support is forthcoming.  The downside of financial restructuring is protected given the price difference between the two legs of the trade. The risk to this trade is limited support from outside sources, enabling the Jan-21’s to rally six points, but not the long-dated bonds. We think however that any significant support should cause the whole structure to rally and thus are happy to take that limited risk.. 

Happy to discuss further, please call.

Tomas