Category Archives for "High Yield Strategy"

4th May 2019

Recommendation: Short TCGLN


On the 21st March 2019, we recommended:

TCGLN 3.875 23 currently trading at 67.5 have scope to fall further to 45 cash price…’

Our rationale was that there was much uncertainty regarding the nature of the disposal of TCGLN’s airline business. Further, the need for TCGLN to retain stronger liquidity meant that any cash proceeds from a sale of the airline business would rule out the possibility of bonds being taken out. Therefore, TCGLN is likely to be a small, lower-margin, less diversified business facing increased competition.

The trade P&L stands at a profit of +12.5pts, however, we believe the bonds have further to fall and maintain the short.

Recent Developments

20 April 2019: Sky News reports that TCGLN ‘has been tentatively approached about a takeover of its tour operating unit or the entire company by several parties…’ EQT, KKR and Fosun (who already own 17% equity) rumoured to be interested.

3rd May 2019: S&P downgrades rating to B- (CW Negative) based on weak booking trends in Europe and the impact on cash flow and already weak liquidity position.

4th May 2019: £55m of TCGLN’s RCF (£650m due in 2022) was sold for a price of 60. Another bank is advertising £25m of RCF for sale at the same price.

5th May 2019: Sky News reports that TCGLN is seeking a £400M extension from lenders to boost its liquidity position. TCGLN said this was ‘to ensure we have both financial flexibility necessary to maintain an appropriate liquidity buffer through winter.’ As mentioned before, TCGLN has to maintain a liquidity buffer of £150-200m.

Upcoming Dates

7 May 2019: Expressions of interest into TCGLN’s airline business deadline.

16 May 2019: H1 2019 results

Issuer Cpn Maturity CCY S&P Deal Size Latest Px YTW Z-Spread
THOMAS COOK GROUP PLC 6.250 15/06/2022 EUR B 750,000,000 € 60.000 26.942 2546
THOMAS COOK FINANCE 2 3.875 15/07/2023 EUR B 400,000,000 € 55.000 20.634 1971
THOMAS COOK 5Y CDS 12/20/2023 EUR 31.00 (upfront) 1844
1st April 2019

(Free Content) HY Strategy Weekly

Index CCYFriday’s Close (29/03)1W Change
iShares EUR HY ETFEUR103.41.2
iTraxx CrossoverEUR269.5 bps-11.5bps


The sell-off on Friday (22/03/2019) was carried over into the beginning of the week just as we predicted in our inaugural HY Strategy Weekly last week and it looked like setting the agenda for spread direction. However, dovish remarks from ECB chairman Draghi about a potential tiered deposit rate for banks (which would significantly improve profitability) led to a significant bund rally and firmed HY credit sentiment.

Draghi: Comments sparked a rally

It still feels that HY investors are underinvested in the asset class. This is due to a number of factors that were discussed last week such as positioning at the beginning of year, lack of supply (compared to YTD last year) and significant outflows in 2018 followed by inflows in 2019.

This means that if there continues to be weak but stable growth, dovish central banks and benign inflationary pressures, it could provide an environment for ‘reach of yield’ strategy scenario in which single Bs lead the outperformance in HY.

HY Movers and Shakers

BORPLN (CCC+) fell -3pts lower after Q2 18/19 results on Weds (27/03) which disappointed significantly with net leverage increasing to 7.37x from 5.67x and EBITDA falling -24.1% however net debt was reduced to £570.0m from £788.7m.  Bonds fell a further -2pts on Thursday and Friday.

ALTICE/ATCNA (B/CCC+) gained +1pt on Thursday (28/03) after solid results especially as management reiterated its aims of reaching 4.25x leverage within 24 months with a mix of growth and disposals.

TCGLN (B): bonds are trading around 66.5/67.5 area with no further news about the full or partial airline disposal but we reiterate our negative note from last week (21/03) in which we suggest shorting the credit.

LOXAM (BB): As we (correctly) pointed out in our LOXAM trade idea on 24/03 the company called the LOXAM 7 22 and LOXAM 4.875 21 on the first call date (01/04/2019) and issued a 265M and 200M offering (road showing until 3 April 2019. 5Y CDS has continued to widened to 279bps.

24th March 2019

(Free Content) HY Trade Idea: LOXAM

IssuerCpnMaturityCCYS&PDeal SizeLatest PxYTWZ-Spread
LOXAM SAS4.87523/07/2021EURBB-239,300,000€ 101.500-15.304-2893
LOXAM SAS3.50015/04/2022EURBB-300,000,000€ 102.098-1.464-707
LOXAM SAS3.50003/05/2023EURBB-250,000,000€ 102.1230.369-261
LOXAM SAS4.25015/04/2024EURBB-300,000,000€ 104.7181.755156
LOXAM SAS6.00015/04/2025EURB250,000,000€ 105.1253.956376
LOXAM SAS7.00023/07/2022EURB225,000,000€ 104.092-18.539-3488
LOXAM 5Y CDS06/20/2024EUR275

Business Description

Loxam boasts 350,000 machines. Image:

LOXAM (BB) is a large equipment rental group offering over 1,500 different types of equipment, with approx. 760 branches, largely in France (65%). Major equipment includes Earthmoving (31% of sales), Aerial Platforms (21%), Building (12%), Handling (11%) and Energy (10%).

Competition is fragmented, LOXAM holds a 3.8% European market share (21% in France). Management owns 88% of the company, 3i 8% and Pragma Capital 4%

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24th March 2019

(Free Content) HY Strategy Weekly


Certainly, for the first quarter of 2019, plenty of buy and sell-side investors have been wrong-footed by the constructive tone in the European High Yield market. Many had been positioned for spread widening at the beginning of the year but a combination of dovish central bank policy (Fed pausing and ECB TLTRO’s), stable macro data, US and China trade talks and the benign inflation expectations have been catalysts for spread tightening.

Furthermore, technicals such as supply – which is lagging significantly from this time in 2018 – and HY fund inflows which have surprised to the upside YTD, have also exacerbated the rally in HY.

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21st March 2019

(Free Content) HY Trade Idea: TCGLN

IssuerCpnMaturityCCYS&PDeal SizeLatest PxYTWZ-Spread
Thomas Cook Group PLC6.25015/06/2022EURB750,000,000€ 79.00014.5511434
Thomas Cook Finance 23.87515/07/2023EURB400,000,000€ 67.50014.1121382
Thomas Cook 5Y CDS12/20/2023EUR1350

Business Description

Thomas Cook (TCGLN) is a leading UK-based travel operator focusing on the European market, is the second largest tour operator in Europe.  It’s an integrated business, selling charter holiday packages with flights, transfers and hotels bundled together. The business operates approximately 100 aircraft and 3,100 shops.
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