Rekeep - Watching renewal rates.

All,

Please find our updated analysis on Rekeep here.

Rekeep successfully refinanced its bonds earlier this year, and with some market dislocation in early April, we took the opportunity to reinvest in the name. Rekeep had to offer additional creditor protection and an OID to place the bonds, and these additional concessions mean bondholders benefit from some further upside from asset sales. Even at par, these bonds are worth a visit.

Investment Rationale:

- We are maintaining our 6% long position in Rekeep's bonds, which we bought in April at 95%. The bonds have 2- 3 pts of upside in the short term, with the next results due in late August.

- Rekeep spun its energy business into a separate entity, Teckal, on January 1st, as part of its strategic plan to divest this business to deleverage. We have never been 100% convinced that this business will be sold, but it provides some further upside to the bonds.

- The documentation was tightened significantly, with the new bond offering some additional protections to complete.

- Working Capital has reduced from the 2023 hiatus caused by energy prices, and although only partially recovered in FY24, further improvement is expected in FY25. However, Q1 was elevated due to the inception of the energy business in Teckal, starting Jan 1st. This impacted the startup of invoice processing, which contributed to the seasonal Q1 increase in workers' compensation (WC). It is expected to normalise in Q2.

- The Polish business continues to provide upside to the bonds, which is reflected in the increasing cost of the put option.

- However, the flip side is that the Italian business appears to be stagnating. Contract acquisition (deemed Commercial performance by the Company) underperformed in FY24 versus FY22 and FY23. This is partially explained by a new Italian law that required additional requirements for entities to issue, review and award tenders, creating a backlog of tenders. The company expect some large tenders to materialise in the near term, and there was a partial improvement in Q1. If this improvement is not sustained, the bonds will trade off, likely to the low 90s or 12.5% yield. This is very much a downside scenario, and we expect recovery will be sustained. We will exit our position if the renewal rates falter.

Potential Asset Sale:

- We remain cautious that the asset sale is probable, as we would expect it to be difficult to separate the energy management from its core business.

As part of the refinancing, investors insisted that bond documentation reflect the potential for the sale of the energy business. Rekeep has created a separate entity, Teckal, and any proceeds greater than €15m must be used for debt repayment, firstly the RCF, and subsequently the bonds, at 103%.

- Additionally, the restricted payments covenant was tightened, with a threshold of a 2.0x Consolidated Net Leverage Ratio requirement. The dividends basket following an IPO is no longer in the bond documentation.