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Yeah agreed, worst case is my understanding.
They're trolls trying to unsettle people.
They can not extend the hybrid…if extended the hybrid loses its equity value…hybrids are usually just extended when a company is in distress and no other financing options are available…they would have the re-issue a new hybrid…likely with an interest rate between 10-11%
OK clear, so they will have to do that?
If its a choice of massive equity dilution. Covenant breach or re-issue hybrid at higher cost I will have to be the latter? Then recover a couple of years, get margin up and potential business sale re-attempt when in stronger position.
What's the reset options that wealthtransfer referred to?
Standard practice for hybrids is to restructure them post the call date…however you can reset them…which means that the interest rate will be reset based on current market rates etc…however, usually only companies in distress do this and it sends a very bad message to the market. Also as mentioned before…the hybrid will lose its equity component and will have the same impact on leverage as a normal bond
So company to issue another bond to buyout the hybrid?? last one was at 4.875%,
debt increases by £400 million ? or what
Exactly, isn't that what they did last time. They will just refinance the bond until they sell NA.
What is all this discussion for?
No, they likely can’t as it would breach there 3.5x leverage covenant
I wonder if they can renegotiate the covenant like it was done during COVID. At the end of the day the hybrid is debt just dressed up as equity. Surely it can't be that big of a deal
HL showed it slipped to 49.15p briefly
What about split it. 250m bond, 250m re-issue smaller hybrid?
"At the end of the day the hybrid is debt just dressed up as equity. Surely it can't be that big of a deal"
from investopedia : "Hybrid securities can be viewed as a form of esoteric debt "
Is it a 100% convertible bond ? - redeemable at what price ? 120 p
Well we have to wait for Garat's cost cutting drive, increase in EBITDA and interest rate reductions to see if its affordable without a RI.. There seems to be plenty of opportunities in the above
So worst case scenario without a sale, either refinance at 11% or cash raise for the equity element 250mil ?
Nothing has materially changed here apart from the fact that Mobico are being shorted by hedge funds and now PI’s have jumped on the bandwagon. It’s all sentiment driven and encouraging all this nonsense being spouted about share dilution and conspiracy theories about how the Cosmens are keeping Garat there as a useful idiot. Apparently as a master plan to destroy the company that they’re major shareholders in so that they can pick up Spain for pence in the £. Having worked for a multinational company that did go into administration when they failed to refinance a huge RCF I have seen close at hand that not only do all shareholders get wiped out when the banks take control but all sorts of vultures then descend to feast on the pickings. In our case it was multiple hedge funds led by Apollo who bought out the banks exposure and then proceeded to asset strip every company in the group and our version of the Cosmens , the family who owned the majority of the shares, were wiped out and got nothing for the shares . The owner and Chairman even had to suffer the humiliation of giving up his parking space in our City office to the ‘adviser’ appointed by the hedge funds while he was still coming in every day. Mobico are nowhere close to going bust of course but if anyone seriously believes that this is being driven down on purpose by insiders with bad intentions then that’s just la la land stuff. If that scenario came to pass the Cosmens would lose their investment and the likely outcome would be that hedge funds or banks would run it and sell off its parts after a restructuring period when the market conditions allow them value. The Cosmens could bid for Spain of course but they’d be one of many and definitely not preferred bidders as the banks aren’t fond of people who have lost their money. So let’s wait and see how it plays out here. As long as they don’t repeat the same cycle of incompetence and mismanagement going forward we should eventually see a bounce here.
Mavswf
that's a very good point. On another issue do family owned ( major shareholders) business go bust more often ?
As long as they don’t repeat the same cycle of incompetence and mismanagement going forward we should eventually see a bounce here.
At HV or anyone!
What is the dilution nd overall impact of calling equity component on hybrid, does it settle the hybrid at same time and remove need for RI? Only altenative at MC of £300 a RI of say £600m will BE 2:1. I calculate I can still get back to b/e eventually but will likely take years if that is the route, I guess I would just sit on it.
Mavswf
"As long as they don’t repeat the same cycle of incompetence and mismanagement going forward we should eventually see a bounce here."
it seems like there has been a purge of the old guard but nothing in ALSA .. Maybe its a reflection on how well ALSA is run
Smoky, as far as I am aware, there is no dilution on the back of the hybrid…it is not a convertible…if it was a convertible then the interest rate would be much lower to compensate for the optionality…it’s equity feature is due to the fact that a hybrid in theory doesn’t have a due date…however, it is usually bought back at its first call date.
HV
Can they just buy back the equity element and then issue another bond for the other half?
OK, learning! And what happens if not called back?
Schmoky, they would lose the equity component and hence just be paying premium rates for a normal bond…this only happens in distress when a company has no other way of refinancing.
JG, why would they buy back the equity component…again…the equity component has nothing to do with convertibility or traditional equity as such…the equity like component is due to the fact that a hybrid doesn’t have a due date
https://wealthmanagement.bnpparibas/en/insights/news/7-questions-to-understand-corporate-hybrid-bonds.html
A hybrid has no maturity date or a very long maturity, but it has a call date ... Seems like playing with words to get debt off the credit profile
Agreed, it’s financial engineering to improve leverage components. Also interest payments on hybrids can be pushed back and it’s less senior in the capital structure vs other bonds…hence a company has to pay a higher rate for them (usually 300-400bps)