Has anyone looked at INTU's secured group structure, Intu (SGS) Finance plc?

This has £1.150m of notes outstanding and about £130m term loan on the Loan Facility.This was 57% LTV end 2018 and we will get new LTV for end 2019 soon. Value has to be (much) lower and LTV will thus probably be much higher, but debt is currently trading at around 50% of face value.

So debt is:

£1.150m FV notes at 50% = £575m

£ 130m FV Term Land at 100% = £130m

Total FV debt £705m

In their LTV covenant test end June 2019, the Value of the collateral was set at £2.332 and their annual EBITDA was £118m. This is a cap rate of 5%. In my opinion this is too high and given COVID-19 and the effect on retail this has to come down. Which will push INTU into breaking their covenants, which they already said they would.

INTU just published their anticipated Cash Flow Projections and SGS has the following profile:

NRI £79.4m

OPEX £22.8m

CAPEX £10.7m

Op. CF £45.9m

Interest £38.2m

FCF £. 7.7m

So clearly the equity is toast and the interest costs are barely covered. Based on a cap rate of 8% on the £45.9m operating income, I get a value of £574m. So basically exactly in line with the current valuation of the notes (but there is still a term loan).

So probably this is currently valued by the market on the following assumptions:

Equity is zero

Notes will become new equity

Term Loan will be rolled over

With the term loan getting a 5% interest rate and thus £6.5m of annual interest, the new equity can get £45.9m - £6.5m = £39.4m of annual dividend. Based on a £575m investment, this is a return of 6.9%.

In my opinion not interesting (enough) to warrant the effort.

Let me know what you think.

Best,

Sjoerd