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Europcar Update

08 July 2020 by jbchevrel

Europcar Mobility Group (EUROCA) is a French company specialized in car rental. EUROCA is active in 100+ countries with 220k+ vehicles, main markets being Western Europe (90% revenue, #1 market share 27%, incl. the UK) Australia & NZ. EUROCA services are aimed at both business customers and leisure customers. EUROCA has numerous partnerships (incl. EasyJet, Accor, AAL, DAL). The 5y CDS (upfront +500bps running) had started the COVID crisis (2/21) at -3% reached 52% and has now retraced to 13% at today’s close. As per the attached Grapple, while the market was expecting a certain default back in March within 5 years, the market likelihood of default is now less than 50%. The 4.125 Nov24s (snr unsecured) have come 97 -> 45 -> 80 today. Q2 numbers are scheduled to be released on July 28. In Q2, revenues are expected to show down by about 80% implying an EBITDA south -€200M. As per Bloomberg, FY 2020 estimates are for < €2B (vs ~€3B for 2018 and 2019) and ~-€100M EBITDA. We are far from ‘SHIFT 2023’ strategy (= reach €4B revenues and 15M active customers by 2023). At the end of 2019, there were reports that some PEs (incl. Apollo) were examining the possibility of acquiring EUROCA, although this now looks much less likely. Another possibility would be an acquisition by a strategic player. Indeed, last month it was reported that Volkswagen was in talks to acquire EUROCA, in order to better capitalize on its fleet. Volkswagen had historically sold EUROCA to Eurazeo back in 2006 (€3.32B deal, equity of €1.26B and net debt of €2.06B). Eurazeo currently owns c30% percent of EUROCA. EUROCA mkt cap is now in the area of €350M and entreprise value as of the end of Q1 was €4.8B, as per Bloomberg. That is poised to remain at more than 4x EBITDA. If VW buys EUROCA, it will buy Eurazeo’s 30% remaining stake without triggering Change of Control (COC) clause on EUROCA bonds (sec 22s, 24s and 26s). The latter have COC clauses at 101% triggered by an acquisition of 50%+ of voting rights by anyone other than Eurazeo.