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One’s Pain Is Another’s Gain

28 March 2019 by jbchevrel

Suedzucker (SZUGR) 5y CDS has widened c30bp since the Mar 20th roll. It announced a profit warning ahead of its FY results in May. SZUGR expects revenues €6.75b EBITDA €350m (lower end of the forecast range). That decrease is largely due to the sugar segment. SZUGR plans to write down €700m goodwill, facing restructuring charges of €150m (€100m due to write downs on fixed assets). The good news for credit (vs equity, all is relative) may be the dividend cut (€0.20 ps from €0.45), This saves €50m. SZUGR also announced it is likely to trigger the cashflow trigger (cashflow/revenue <5%) on its hybrid bond (ie they will not pay its coupon on for 1y = 4 quarters, until the covenant is tested again in 2020). This saves €20m. Looking forward, SZUGR expects for 19/20 revenues €6.7bn EBITDA €100m (with a loss of €200m-€300m in sugar). If net leverage effectively rises closer to 6x, it is likely to result in S&P revising its outlook to Negative from BBB- s. That would arguably not be a game changer, as Moody’s rating is already Baa3n, which is why SZUGR has gone from iTraxx Main to Xover. Its CDS remains quite consistent with cash, with Z-spread of 160 on the 2023s and 190 on the 2025s.