Naviera Armas - No news is good news

All,

Please find our updated analysis on Naviera Armas here.

Is Coronavirus just what the doctor ordered?

The company is due to report on Q1 while it has so far not reached out to bondholders. The extra liquidity buys management time to concentrate on the business and it is possible that Spanish emergency measures related to Coronavirus may present an opportunity for the company to relieve itself of excess costs while it is suspected of having been largely FCF break-even during the affected period.

Clearly we are required to model a bounce-back scenario that is thus far highly uncertain - not least because the Strait remains closed. But under what we consider reasonable assumptions (and one big assumption: that the company can spend a year without a big mis-step) the company has a chance to find to NCF break even in 2021 and thus perhaps even a refinancing scenario in 2022. 

On amend and extend:

We think a refinancing scenario may be greatly aided by the large number of unencumbered vessels in the restricted group that could be used to improve bondholder position in exchange for an extension. Beyond removing the risk of asset sales or layering/ dilution (which within the restricted group is now limited to some E65m in aggregate we believe) we do not think additional security is going to make the bonds actually much more valuable as there is no conceivable scenario in which the Spanish state would allow the insolvent liquidation of the fleet, leaving its islands without essential infrastructure / traffic connections. So it would always be a going concern valuation of the ferry business in those markets. But int should still help extending the bonds anyway.

The Spanish force majeur clause allows companies to benefit from more flexible employee arrangements for longer than most other jurisdictions so far. We therefore see a good chance that Naviera Armas can make the required savings and extricate itself from certain loss making contracts to present a healthier CF profile in time.

We are looking at the bonds from a long perspective - possibly taking a first bite ahead of reporting. Then re-assessing afterwards.

Wolfgang