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Debt Maturities Extended + Fresh Equity Injected

21 October 2020 by jbchevrel

Today the debt collector Garfunkelux (GFK) CDS is tighter by -20% of -420bp (!). We close the 5y CDS at 145bp, tonight. The cash GFKLDE 11% Nov 23s rallied more than 15pt today, closing at the highest level since February. The £230m of 11% Nov 23s are now trading at a premium (101.5). This was the biggest daily increase since these bonds were issued in 2015. This impressive rally was based on company’s new bond sale plan (£1.6b) and fresh equity (£0.6b). That will enable them to redeem existing debt. They said they will issue new Senior Secured Notes whose proceeds will be utilized to 1/ redeem certain existing notes 2/ partially repay drawings under RCF 3/ pay down certain expenses 4/ keep room for future debt portfolio purchases. The New Deal includes € and £ 5NC2s (£400m and min. €500m) and € 5NC1s (min €500m). All with CoC clause at 101pt.

Russia Update

20 October 2020 by jbchevrel

Russia CDS has been successful in remaining below the 100bp handle despite the recent market softness. Today Russia CDS closed at 93bp. For reference, on March 18th, it closed at 305bp. Crude benchmark prices remaining higher than $40/bbl is one part of the equation. The market weighs that OPEC+ would likely intervene further in this market, should it be unbalanced again. Second positive, Russia and US are about to close the one-year extensions on arms-control deal that would freeze the number of nuclear warheads for each. The remaining issues to be worked out include verification of the warhead freeze and the definition of a warhead. On the negative side, the US State Department has broadened its sanctions against Nord Stream 2 (Russian natural gas pipeline to Europe). The most likely next US President, VP Biden, is also widely regarded as hawkish as far as relations with Russia are concerned. On Friday, we will have the Central Bank of Russia rate decision (1130 LDN). The committee is not expected to cut the Key Rate further down, from its current 4.25%, but if it did, that would push real rates closer to zero (if not through it) and would probably be perceived negatively by the Russia CDS and the Russian rouble.

Auchan Deleveraging

19 October 2020 by jbchevrel

Today in € HY CDS space, some of the most COVID-sensitive names had a relief rally, thanks to better global risk sentiment. It was the case of Stonegate and TUI, both tighter by about a point. Auchan CDS was also among best performers. Auchan CDS is a member of XO since s32 and was in Main before that. Today Auchan CDS tightened -24bp to close at 140bp. This move came after Auchan's sale of 36.18% in Sun Art. That deal does achieve the France-based retailer’s deleveraging plan. That is expected to help them address the €11b debt pile and >4x leverage. Auchan will raise €3b from the sale, with Alibaba (BABA) taking control of the Chinese retailer. That is a new strong step in the deleveraging process although that had already started. Indeed, Auchan has reined in capital spending, and the Mulliez family won't pay itself a dividend for the next 2 years, in order to support liquidity.

Rolls-Royce Update

16 October 2020 by jbchevrel

Rolls-Royce Plc (RR) is a UK-based engineering company focused on power and propulsion systems. RR segments include Civil Aerospace, Defence Aerospace and Power Systems. RR has been struggling this year due to the collapse in the number of hours flown by its wide-body and long-haul aircraft engines. This is the source of more than 50% of their Civil Aerospace segment revenue. This metric fell -75% in Q2 and -50% in H1. Yesterday, RR announced it was issuing £2b of 6y and 7y bonds, paying coupons of up to 5.75%. RR needs cash now and will have racked up close to £3.5b in net debt by the end of this year, most of which fall due now or in 2021. RR will have burnt roughly -£4b cash in full year 2020, and analysts expect negative cash flow of -£1b in 2021. Issuing stock, issuing bonds, and the 2y facility total £5b plus £2b potential asset sale (Spanish parts maker ITP Aero). That should be enough liquidity for them to operate over the next 1 year. 1-year CDS has been stable at about 200bp.