TCG Game Theory

All,

So from playing around further with our recap model, we come to the following conclusions:

1) At an assumed debt capacity of £1bn (excl. RCF) and a 100% write-down for the bonds, a minimum of £350m of the £750m proposed cash injection would have to be provided as equity. The company could - in theory - make up for any shortfall of that figure by drawing it under the RCF now - before entering Administration and writing it down 100%, p.p. with bondholders.

2) Crucially, it becomes clear that (organised) bondholders could double their recovery by stonewalling Fosun and forcing the company to draw the entire £350m from the RCF instead. If currently undrawn, banks would hate that and threaten to provide no RCF and no bonding to NewCo. But their position changes if - plausibly - management have the banks fully drawn and offer a pay-down in return for a deal. Recapitalising TCG without Fosun would have the added benefit that creditors would not have to perpetually sit behind a majority owner, unable to realise their equity.

3) Bondholder recoveries in the latter scenario could be upwards of 40p/£, but we would not make that our base case.

Wolfgang