Voestalpine - building a position

All,

Please find our initiation here.

Voestalpine is an Austrian IG Steel producer with a strong balance sheet and ample liquidity. 

On a better day than today we are looking to build a 5% of NAV short in the 26s.

We are not looking for an insolvency event here. Instead our impression is that we have not yet had the same news flow as from Schmolz+Bickenbach, perhaps because the latter’s solvency situation created an event.  We note that at first glance the idea of going long S+B equity (albeit not yet) and short Voestalpine bonds appears contradictory, but while the former is a post-event fundamental long, the latter is a potentially pre-event short and also functions as cheap tail risk hedge.

On our base case projections the company merely levers up half a turn, but it is easy to draft a more draconian scenario. The 2026 bonds trade on a YTW of 1% and any further hick-up in the automotive or global macro economy (say while China keeps up construction and healthy Iron Ore demand) would have a direct impact on the company.

Wolfgang