RE: Short and Long ViewToday 10:17
Wealthtrasfer - "The Board only has one job now, to settle or refinance the Hybrid." - what puts you off the idea that they hold the hybrid as is? I am down to the following scenarios :
1) keep hybrid as is - No risk to covenants. Sub-optimal in terms of interest rates and I think the 8% has to be kept until 2030? But £250m of spare cash can go to other debt so +21m extra interest on the hybrid and -£10m on other debt so +£11m extra interest - which isn't great but isn't end of days stuff. For me this should be the default assumption as its is the do nothing scenario
2) Get rid of the hybrid using liquidity - Liquidity exists post NASB sale, but covenants are breached which can mean a debt call so unlikely without prior agreements as that is a potential bankruptcy scenario. I don't think management could ever sign off on this without debt agreements as it breaches their fiduciary duty
3) Sell assets to get rid of the hybrid - For me unlikely since as with NASB the challenge is getting a cash vs EBITDA ratio that has covenant headroom and it takes ages. UK sales could be done at the right time at the right price but done fast won't move the covenant ratio imo or get good value
4) Call the hybrid and do a new hybrid arrangement - this is probably the ideal option as even 6% would be better and the hybrid could be reduced in size. I think this is their intention. A £400m new hybrid with spare cash going to debt pay off is basically scenario (1) but slightly improved. It's unclear if this would be an option or not
5) Replace the hybrid with new debt - covenants will be breached imo and again I don't think they can ever sign off on this option
6) Do a stock raise to replace the hybrid - I really hope against this option. This would be dire for long-term holders. I don't really see why this option would be chosen though. You can't always trust management though
7) Something I've missed?
I think (and hope) the plan is to try and do (4) but with (1) being the default assumption. I can't see much detail about their plans except what is in the FY slides which would fit this plan and what they have said about keeping the hybrid ("Options to call and refinance, or roll the bond which resets from 4.25% to c. 8.5% c£21.2m annual impact"). I don't see (1) as a disaster, I do see (6) as a disaster.