Position in CMA

All,

Please refer to our initiation on CMA here.

This short term trade is all about the actual liquidity over the coming 18 months and what volumes / rates / capacity management will do to it. CMA is the most weakly capitalised of the top majors and has already been struggling to cover its interest payments in recent years. The HoldCo SUNs are structurally subordinated to most of the secured debt sitting at NOL and below and would likely be termed out in a Sauvegarde filing - sending them down to 30c/E - or less in this environment.

We are not finished modelling the company and thus it's a nervous trade and, again, it's a question of shooting first and asking questions later (but soon). The trade is mostly premised on the thesis that a) the price is based on a gloomy scenario that has yet to materialise, b) existing headroom of E500m post pay-down (over E500m min. cash balance) and c) the trouble we have believing that the shareholders are going to drop a E30bn empire on the first hurdle for lack of finding another E500m or so to buy back their equity option and at least see how bad the damage really is (Thinking EV of 5x EBITDA + 1x Control Premium at 8.5% normalised EBITDA margin on E30bn of normalised volume = EV of E15bn or equity of E5.5bn. Thus 11x upside from injecting E500m for the family/Yildrim now vs filing and risking it all - in an admittedly debtor friendly jurisdiction.).

So the thesis is still soft and the downside material (2/3). We are therefore taking no more than a (confident) 3% position at this time at 81c/E with a view of either abandoning it in the near term or growing it (putting effectively 2% of NAV at risk for a short period for less than half of that in upside). Upside comes from demand/volume returns post lock-down in the West as well as bunker prices. Downside comes from industry-wide overcapacity and the corresponding destruction of rates to cover operating costs only. 

Wolfgang