24th March 2019

(Free Content) HY Trade Idea: LOXAM

Issuer Cpn Maturity CCY S&P Deal Size Latest Px YTW Z-Spread
LOXAM SAS 4.875 23/07/2021 EUR BB- 239,300,000 € 101.500 -15.304 -2893
LOXAM SAS 3.500 15/04/2022 EUR BB- 300,000,000 € 102.098 -1.464 -707
LOXAM SAS 3.500 03/05/2023 EUR BB- 250,000,000 € 102.123 0.369 -261
LOXAM SAS 4.250 15/04/2024 EUR BB- 300,000,000 € 104.718 1.755 156
LOXAM SAS 6.000 15/04/2025 EUR B 250,000,000 € 105.125 3.956 376
LOXAM SAS 7.000 23/07/2022 EUR B 225,000,000 € 104.092 -18.539 -3488
LOXAM 5Y CDS 06/20/2024 EUR 275

Business Description

Loxam boasts 350,000 machines. Image: Loxam.com

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%

LOXAM operates under 3 divisions: Generalist France (approx. 48% of sales), Specialist France (15%) and International (7%), this accounts for 71% of total revenue. LOXAM has over 250,000 customers ranging from individuals to large corporations, around 60% of sales are from the construction and civil engineering sectors. Top 10 customers represent an increasingly large proportion of revenues.

Recent Results (4Q18)

Revenues increased 5% y-on-y although EBITDA fell -4.7% compared to 4Q17. Net leverage of 4.24x (total net debt €2.14bn) was in line with guidance, whilst FCF did increased €7M y-on-y to €40M. Management said that they believed the macro and construction in Europe will remain positive, but this is clearly over-optimistic given the decelerating growth environment. The company wants to deleverage to 4x with management indicating that gross CapEx will be -15% lower y-on-y in 2019.


Trade Idea

Most of the structure trades to the call, and the company said in terms of refinancing they remain ‘opportunistic’ (which is reliant on market conditions) with the LOXAM 7 22  and LOXAM 4.875 21 (Both 1st call 1/04/2019) most likely to be refinanced.

However, given the company’s sensitivity to macro slowdown and high leverage, investors should take the opportunity to short the credit as global growth fears strengthen. The subordinated B-rated LOXAM 6 25 at 105.125 (3.95% YTW) is an ideal short, whilst investors may wish to express the trade synthetically via the 5Y CDS contract which has traded inside of iTraxx Crossover for the majority of 2019 (see chart, below).

However, one must acknowledge the technical that the French real money investor base, who are typically long LOXAM, can prevent spread widening (please refer to TEREOS short squeeze of October/November 2014).

Source: Bloomberg

 

Ash Nadershahi

Ash completed two internships at Deutsche Bank and Credit Suisse after graduating from the University of Birmingham in 2008. In 2011 he joined BNP Paribas working on the investment grade credit desk before moving to Credit Agricole CIB focusing on European High Yield credit. In 2016 he was responsible for market-making high yield credit at CFE.