TAP - Slow Progress
All,
TAP’s results call was not particularly revealing, except for the comment that management hope the EC might sanction its restructuring plan by end of May, which almost certainly means June at the earliest.
Slow Progress:
The question of what is causing the slow progress was asked directly on the call, but management gave no hint as to which part of the plan may be so contentious. Instead comments suggested that the EC is in full agreement with the plan, which then begs the question as to what prevents it from sanctioning it. In the meantime the company has had to especially seek permission to draw on E462m of state subsidies, which has now been granted.
Positioning and Novo Banco:
We remain long the SSNs with 3% of NAV on the view that Portugal has no legal instrument to restructure these bonds (Portuguese Law). This position is somewhat challenged by the country’s treatment of Novo Banco’s bondholders in 2015. The legal situation then was different (Portugal claims it briefly had resolution authority after legislating early on EU Banking Recovery directive). But arguably that could be too narrow an interpretation and perhaps where there is a will there is a way. We see Portugal today under less pressure and with less liberty to impair the bonds, as well as with less upside from such a radical move, but remain open to discussion.
Wolfgang
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