SBB – Managing the deckchairs
All,
Please find our updated analysis here.
SBB has two tasks to avoid going into restructuring or having to find a buyer at any price; 1) Execute the sale to Brookfield of the remaining Education company stake at close to book value, 2) Get its lending banks to agree to roll their existing secured debt. Banks are well beneath their 40% LTV limit, so regulators will bring pressure to avoid a collapse. However, an agreement between the company and its lenders is needed. Without a deal, SBB is just rearranging the deckchairs on the Titanic.
Investment Considerations:
- We are not taking a position presently. SBB needs to get the sale of Education done but in tandem with getting its banks on board with rolling their facilities. Even with financing through Jan-27, SBB would have no guarantee of returning to the capital markets, but it would have a shot.
- LTV on Sarria’s analysis is 68% through the SUNs. Our total asset valuation is 16% lower than SBB (LTV is 52% using the SBB valuations).
- The asset sale process is in SBB's hands only as long as the banks play along.
Trading Update Q223:
- In the next 12 months, SBB has a funding gap of over SEK10bn if we exclude the SEK2.4bn of bank facilities still officially available. The gap includes SEK6bn of bank facilities which SBB management hopes to persuade the banks to roll. In Q2, nothing was agreed, but SBB hopes to make progress in Q3. In the absence of an extension of the bank debt, restructuring is inevitable unless SBB manages to sell itself. SBB also continues to talk with Brookline about the sale of the remainder of the education business, but there was no update on the call. Q2 saw SEK6bn in negative valuation moves and Brookfield will use this to push for some discounts on education assets. Municipalities are seeking to take back control of public assets, and SBB agreed on heads terms for SEk3bn of asset sales to lessees.
- After adjusting for bonds/CP repaid as they matured and the repayment of bank debt (which we had expected to be rolled), cash was broadly in line with our model and we have not changed our view on how SBB can salvage itself.
- Sveafastigheter: A potential IPO for this asset was mentioned by management on the call, but we do not see an appetite for Real Estate IPOs in the Nordics. A sale might be executable, but likely at a discount to book value.
I look forward to discussing this all with you soon.
Aengus
T: +44 203 744 7055