YTM of 18% - This name got Kitchen-Sinked

All,

Please find our initiation here.

Only a few days ago we thought it was a “travel short" and decided to do work only for Mr. Trump to beat us to it. But, an analysis of its historical downturns, its liquidity, as well as the make-up of its gross margin and fixed/variable costs shows that the company is far more resilient than meets the eye. 

The name we are talking about is e-Dreams.

Admittedly, it will have to be resilient, because it deals primarily with discretionary travel and it has tour operating exposure too, which may (will) deny it the usual WC inflow around March and much of its summer business. But coupled with liquidity of close to 0.5x turnover there will be no credit event and the strong cash generation of the business can carry the increased leverage.

We would not be surprised if net leverage doubled to 6x by year-end (scenario modelled), but business will normalise and maturities are long enough. So we struggled to model anything draconian enough to warrant fundamental concerns for the bonds.

YTM is 18% and based on news flow of further national shut-downs in its core and expansion markets the price may yet fall further. But at the right time we will have some of those bonds. 

Wolfgang