OHLA - Compromises
All,
Please find our updated analysis here.
OHLA is getting closer to getting the consent necessary for its restructuring. It is possible that the transaction may not need the English Scheme of Arrangement (SOA). We see the proposal as the best option for creditors as it secures new equity and liquidity for OHLA, so we will vote to consent. Bondholders will exchange some of the cash they were due and extend the maturity of the remaining bonds. However, a stronger OHLA is a preferable option to taking over a company amid a liquidity crunch.
Investment Rationale:
- We hold 6% of NAV in the SSNs and are consenting to the restructuring proposal. We expect 22% of our exposure to be amortised at closing, with the remaining 78% being extended to December 2029. Including fees, the entry price is 93.5c/€; the upside is 5 points if the new bonds trade at 14%, and the downside is 3 points if the yield moves to 16%.
- The remaining exposure will be exchanged into a new bond maturing in December 2029. The cash coupon is the same as the existing SSNs (5.1%), and the PIK portion starts at 4.65% (vs. 5%), rising to 8.95%.
- The bonds will likely only trade above par once the Canalejas sale is completed
- We are sceptical that the last €50m will be delivered and will almost certainly need to come from a Convertible bond. If a convertible was issued, this would equate to around 2 points of further upside.
- The entire transaction could still fall apart, although we think this is unlikely, in which case both bonds will trade at around 70c/€ (in line with 2021).
- We have assumed that the transaction will be completed via an SOA (requiring 75% bondholder support). If 90% of bondholders sign up, the deal will be via an exchange, and an extra 0.5% will be paid in the consent fee. We cannot see why SSN holders would not support the transaction. Over 50% of bondholders have already signed up, and OHLA is still confident that it can get to 90%.
The restructuring is designed to ensure sufficient liquidity at OHLA:
- The banks wanted a minimum of €100m cash on hand to cover working capital, and the waterfall for repayments has been designed to ensure that €87m of liquidity is raised for OHLA.
- The target is to raise €150 in equity; €101m has been pledged already, and OHLA is marketing the remaining €50m to existing and potential new investors.
- If the €50m additional equity (or convert) is raised, that will flow to bondholders to get the redemption level to €140m.
- OHLA will also have an Incurrence leverage covenant of 2.5x/1x EBITDA.
- The target date for completing the restructuring is before March 2025, but if an SOA is not required, it may close by the end of December 2024.
Bondholders get less cash upfront, but OHLA will have better liquidity:
- We will be consenting our position to the proposal. The transaction is less favourable to bondholders than the initial statements indicated, but the negative impact of the recapitalisation falling apart and a liquidity crisis at OHLA would be 25 points.
- Bondholders extending their exposure by three years and receiving less cash immediately; in return, at least €101m of fresh equity and €100m of cash collateral will be released, significantly improving OHLA’s financial position. Bondholders will also see the PIK portion of their coupon rise over the life of the bonds. The increasing PIK element will be a powerful incentive to get the bonds repaid from proceeds sooner rather than later.
- The original SSNs had a €204m amortisation due in March 2025, but this will now fall to a maximum of €140m. A redemption of €91m is already assured if the restructuring proceeds. OHLA is seeking up to an additional €50m in equity, with the possibility of a convertible to bridge any gap. The bond redemption will rise to the extent the extra cash is raised (up to a maximum of €140m)
- OHLA has mandated banks and brokers to source investors to take up rights not taken by existing shareholders.
- The bonds currently trade at 96c/€ (which includes a minimum of 2.5 points in fees (a 2% OID, 0.25% early bird fee, and 0.25% consent fee). If over 90% of bondholders support the deal, the consent fee will be 0.50%, and the transaction will be completed as an exchange rather than under an English Scheme of Arrangement.
- When Canalejas is sold, OHLA will still be required to use the majority of proceeds to reduce debt. An acceleration of repayment would boost the return on the bonds.
- The early bird date for bondholders to accept is the end of the day on Friday 15 November.
Aengus
T: +44 203 744 7055