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The potential for a short squeeze was one of the reasons I bought in. Debt aside, shorting in the face of decent cash flow is a risky business.
@f15jcm I wouldn't worry so much on the shorts - you see shorts in companies with extremely bullish price action, for example, Ocado and Tesla. The short sellers were "short squeezed" i.e. having to buy shares to crystallise their short position losses which further exacerbated the bullish movement. Goldman Sachs own 28m of AA shares and they are rarely wrong in their trading results from their 10k (annual) reports. It's really down to interpretation which makes investing difficult. Current broker consensus show Liberum Capital with a target of 130p, Citigroup 200p, and Berenburg 30p.
Thanks for your posts. It's an interesting story to follow, clearly a tough bull/bear battle is being fought. I have noticed that one of the institutions (Engadine Partners LLP) have increased their short position following the trading update. I am surprised by this given the content of the update (literally zero negatives) though previous insider buying offers some reassurance. https://shorttracker.co.uk/company/GB00BMSKPJ95/
Good post, I would just add that the A3 notes are already refinanced with a Forward starting Term Loan Facility already agreed to take out these bonds.
Secondly, I think you will find (maybe hopefully, wishful thinking) that the Company purchases more of the B2 notes since last reported. Only quirk is the B2 notes they have purchased, have not been cancelled and still sit on the balance sheet. So £23m of bonds (of the £570m) have been purchased and sit outside the securitisation vehicle.
Having worked in financial industry for several years, I wanted to address the retail investor concerns over AA's debt as this seems to be main topic for discussion.
The bonds shown below are the 3 earliest that are expected to mature.
A3 - £200m - 4.25% - 31/07/2020
A5 - £372m - 2.88% - 31/01/2022
B2 - £570m - 5.5% - 31/07/2022
The rest mature in 2023 - 2027 which can be refinanced.
Here's how I believe AA are expected to service their debts.
For A3 bond - this can be serviced from the cash reserves. I would expect a dividend cut to raise further cash. In addition, there is a £200m floating-to-fixed-rate facility, £60m working capital facility - both which are currently undrawn.
For A5 bond - I would expect this would be refinanced to a later maturity date due to its low interest rate. Prior to refinancing in February, the A5 bond was £700m i.e. £375m was refinanced and £3m paid off during the refinancing transaction.
For B2 bond - This is what I would expect the management to tackle as this has the highest interest rate and principal. The interest rates actually go down from 5.5% to 5.0% after the expected maturity date and hence less of an issue when compared to senior notes. Given the timeline, and the current positive update on recent RNS updates, they are in good position to raise positive cash flows from the strong rates of policy growth to service this also.
In conclusion, I hope this eases the minds of those who have concerns over AA's ability to continue trading. It seems like they are in a good position to tackle their debt pile for the foreseeable future. A release of its full year results in line with annual earnings, if materialises as expected, will see a quick recovery in the share price.
References:
https://www.theaaplc.com/investors/bonds/rating
https://www.theaaplc.com/~/media/Files/A/AA-Plc-V2/documents/200205-aa-psr.pdf