Lowen Play - The only deal in town

All,

Please find our unchanged model here.

Is the Lowen Play deal a good one for bondholders? The truth is it is the only deal possible. It is a self-help deal and bondholders are taking (nearly) all of the economics. Bondholders are transferring their €350m existing notes into part senior, part PIK notes. Additionally, they are getting 95% of the equity.

The underlying business has underperformed since the bond was issued. The business faces regulatory and social pressures, and the number of operable AWPs continues to be limited. For these reasons, a full refinancing was not possible.

Pre Christmas Annoucement:

On 23rd December, Lowen Play (Safari) made public what was already rumoured in the market, announcing that c.78% of existing Senior Secured Notes have signed the lock-up agreement. Terms are below and with such a large portion locked up, it is likely to proceed in Q12021. Kirkland & Ellis and PJT Partners are advising the Adhoc Committee. Bondholders have until the 14th of January to contact the advisers to sign up to the Lock-up agreement with each consenting holder receiving 0.25% fee.

Proposed Transaction:

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 a maturity of Sept-26, with a 12% PIK and 0.5% cash interest.

- The existing Senior RCF will be repaid and cancelled at the 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 preferred equity of €7.5m to the 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 ad-hoc 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.

Tomás

Tomás MannionLOEWEN