Modulaire Group – Bond wrap
All,
Please find our unchanged analysis here.
After months of speculation and a review, the fate of the Modulaire Group has now been decided with TDR selling it to Brookfield for US$5bn. This represents an excellent deal for TDR. A multiple in excess of 10x on the company’s adjusted LTM EBITDA, or 12x our 2021 forecast represents an incredibly good price, and we are unsurprised TDR is looking to take the money. The whole capital structure will be called when the deal closes (by Q4) meaning the bonds should trade wrapped around their call prices.
The Deal:
Brookfield has agreed to purchase Modulaire Group from TDR for US$5bn. This will be financed via US$1.6bn in equity and US$3.4bn in debt. Brookfield is providing US$500m of the equity, with the remainder coming from institutional partners. The transaction is due to complete by Q4 2021.
The price represents a 12x EV multiple on our 2021 EBITDA forecast of €350m (US$417m at today’s rate). Taking the company’s own figures (LTM 3/21 Underlying EBITDA) of €380 plus €28m (FY M&A impact), we get €408m (US$485m), giving us a multiple of 10.3x. Still a particularly good price. Ignoring cash leverage on the new structure would be around 7x, there will be some costs to be taken out, however, given TDR’s ownership, the low hanging fruit will already be done.
Existing Debt:
The existing debt still benefits from call protection.
The US$ Senior Secured 8% notes are currently callable at 102, falling to par in February 2022. The € Senior Secured 6.5% notes are callable at 101.625 falling to par in February 2022. The € Senior Secured FRN is callable at par now. The Subs are callable at 102, falling to par in February 2022. All benefit from a change of control put at 101.
The cost of the calls is around US$42m, although given the change of control put the incremental cost is US$19m. Postponing a US$5bn transaction to minimize these costs does not make economic sense. Assuming the approvals are received by Q4 21, there will be a call and refinance of the capital structure.
Positioning:
We maintain a legacy position in the call US$ 8% bonds, earning a little bit of running yield. We have been intending to reallocate to another opportunity soon. With the sale of the company in place we expect these bonds to remain wrapped around 102 in anticipation of the call.
Happy to discuss any ideas as always.
Aengus
E: amcmahon@sarria.co.uk
T: +44 203 744 7055