Lowen Play - No refinancing, self help required
All,
Please find our unchanged model here.
Despite rumours, Lowen Play have not been able to do a straight refinanicng. Instead they have reached agreement with an Adhoc Committee of bondholders & shareholders for a partial debt for equity swap and reinstatement of 63% of the bonds with a 3yr extension. We have remained cautious on the name all year, although we did think the exuberance of the market might allow a full refinancing. We still have concerns with the underlying business and impact of regulations and changes in the capital structure don’t alleviate them.
Transaction - Debt:
- The #350m bonds will be amended in two tranches - €220m reinstated with maturity extending to Dec-25 (3yr extension). The coupon changes from 5.375% to 7.75% (but for the first 18 months will be 4% cash and 4% PIK).
- The balance of notes, €130m will be moved to HoldCo PIK, with maturity of Sept-26, with a 12% PIK and 0.5% cash interest.
- The existing Senior RCF will be repaid and cancelled at Effective Date. If the Company can’t secure an additional RCF, they will issue €30m extra “reinstated SSNs with 4% OID and 4% backstop fee. If an RCF is attained, the reinstated notes will be upsized to €250m and a corresponding reduction in PIK notes to €100m.
Transaction - Equity:
- Primarily, the equity is travelling to existing bondholders. However, there is a preferred equity of €7.5m to existing shareholders, which is junior to the PIK notes, but to be paid ahead of the new equity. There is additional upside available to the current shareholders above a 25% IRR hurdle rate.
Investment Considerations:
- Bonds have traded down 5pts on the back of the news. This will be on limited or no volume given 80% of the bondholders are involved in the adhoc Committee.
- The transaction should conclude in Q1 2022. With 63% of the bonds reinstated, and the balance in PIK notes (with equity attached) this is worse than previous rumoured deals. The Company has given itself plenty of headroom with the new capital structure leaving them with €80m of cash.
- Taking a long position now involves taking equity risk on German regulation plus buying “hope” value of growth of their online business from scratch. We are not enticed.
Happy to discuss,
Tomás
T: +44 20 3744 7009
M:+44 7786 705 806