RAC - No decision on dividends, refinancing of Class B the focus

All,

Please find our updated model here.

We had expected a decision on a potential £70m dividend to shareholders, but Company has not made a decision as they contemplate a refinancing of the Class B Notes.  There is no other maturity deadline except for the Class B notes in November 22, and with the call protection expiring in July’21 we would expect a refinance to take place next year.  In fact, the current call protection is only 1.25 percentage points so an earlier refinancing can not be ruled out.  

We maintain our 5% long position in the Class B notes, purchased at c.98% (same as current levels).  The Company continues to deverage marginally, and although there is the possibility to pay dividends of c.£70m, we believe the Company are unlikely to dividend the total amount, and aim for a refinancing in early 2021. The yield to maturity is c.6% currently, but with refinancing in July'21 when call protection expires, yield is 8%. 

Following the refinancing in early February of the senior part of the capital structure, the Class B notes with Nov-22 maturity are the main focus of the capital structure. The underlying performance, especially the resilient nature of its membership, confirms our investment thesis and we are happy to maintain our position.  

Happy to discuss.

Tomás