27 June 2019 by jbchevrel
Boparan (BOPRLN), the holding company for 2 Sisters Food Group in particular, was under pressure today again in the credit market, worst performing single-name in the iTraxx Xover s31 with its 5y CDS wider by 4 points this morning. Cash was also consistently off 3-4 points on 2021s, both the € and the £ issues. That latest leg wider/lower (+8% on 5y vs Tue close, at today’s intra-day peak) came after the release of fiscal Q3 numbers yesterday, period that saw the repayment of the 19s. The credit was already under pressure yesterday, and today’s move marks a new wide, we are wider 8 points on the 5y contract, since Tuesday’s € close (from ~40% to 48% mid intra-day then closed 45%). EBTIDA indeed printed at £21.7M, which was more than 20% less than the Q3 of previous fiscal year. But what caused more concern to people as far as liquidity is concerned, was the swing in working capital, rather unexpected, if price action is any guide. Sell-side dealers recommended going short either via CDS or via the 21s (there are £330m 5.50% 21s €300m 4.375% 21s and a £80m revolver maturing 21 as well). Net debt stood at £625m at the end of fiscal Q3, so optically stable/slightly up by +0.4% from the previous year’s FQ3, but sharply up from the £570m as of Q1-19, taking leverage to 8x, up from 7x in the previous quarter. While the company expects that a continued margin improvement in the ‘Poultry’ segment will help FCF/EBITDA improvement eventually leading to de-leveraging, the market almost surely expects a default over the next five years, with implied probability of 94% at that horizon, up from roughly 1/3 priced in, about a year ago.