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Second Round: TUI Update

12 August 2020 by jbchevrel

TUI AG and the German government-guaranteed agency KfW have agreed to increase the existing tranche by €1.05B. Drawing of this amount is subject to the issuance of a convertible bond to the Economic Stabilization Fund (WSF) in the amount of €150M and a waiver by the bondholders of snr 21s. If fully converted, the WSF fund would get a stake in TUI AG of up to 9%. These bonds have an initial term of 6 years, and bear an interest at a rate of 9.5% p.a. TUI has a redemption right once the €1.05B KfW tranche is redeemed. This package is seen as providing enough liquidity to cover the seasonal swing through the upcoming winter. Including this additional stabilization package, TUI would have cash and available facilities of €2.4B. Shorts got squeezed on the CDS. The 5y contract tightened by -4.7% upfront or equivalently a tad more than 200bp running. The 5y mid looks 21.5% UpF on our close. Along with that tightening, the curve steepened: 1s5s looks above 8%, on our close. For reference, on the 1st round (on March 26), TUI 5y CDS had tightened much more aggressively (tighter -21% on that day, from 28% UpF to 7% UpF) when they got the initial $2B aid package from the German state / KfW. Telling about the reaction function: letting non-fraudulent COVID-hit € companies fail still seems unthinkable.