PIOCRE Float 03/22/23
IAM Capital Markets View
A refinance of the existing facility on more favourable terms will result in a materially lower cost of funds and derisk this credit completely. A market update is expected in the next few weeks. Currently, the company’s EBIT is not able to sufficiently cover the high interest burden. In our view, what is needed is both a recapitalisation as well as a restructuring of the current existing facility.
Net assets are sitting at 90.4c (almost 2x the current share price of 46c), so there is capacity for an equity raising despite the heavy damage inflicted on the company over the last three years. We believe a refinance of the existing facility on more favourable terms will then get equity investors more willing and motivated to participate. The call on the PIOCRE Float 03/22/23 is unlikely to take place in December 2021, but the market is really looking at this bond as a 1.5-year (or longer) investment.
In our view, it is high risk, but picking the bonds up in the low 90s may offer an opportunity to benefit from a newly structured, lower cost capital structure with an improved balance sheet going forward. PNC does have sufficient cash flow from operations (CFO) and c.AUD30m in cash/undrawn facilities at its disposal to fund its PDP purchasing programme and interest costs over the next 12 months.
Post 12 months (if no action is taken), the situation becomes a much more negative story. The outlook for FY22 is reasonable as COVID-19 abates and the PDP portfolios improves following a more solid macroeconomic backdrop.
Recent Developments
PNC’s FY21 results were highlighted by:
- Liquidations of c.AUD95m (vs c. AUD101m in PCP)
- Purchased debt portfolios (PDPs) investment of c.AUD31m (vs c.AUD58m in PCP)
- Statutory EBITDA of c.AUD54m (vs c.AUD34m in PCP)
- EBIT of c.9m (not sufficient to cover net interest expense of c.AUD26m)
- Statutory loss of c.AUD20m
PNC refinanced late in 2020 the syndicated finance agreement (SFA) at a high cost to preserve shareholder equity. PNC has commenced a formal process to refinance this existing syndicated facility and received non-binding indicative offers on more favourable terms.
Extract from the FY21 Annual Report – Note 3 Going Concern
The Directors believe that is appropriate to continue to adopt the going concern basis of preparation as the Group is well advanced in refinancing the current SFA and the Directors are confident of executing a new senior finance facility by the end of September 2021 with a significantly lower interest rate, an extended maturity date, and with appropriate covenants.
This comment by the Directors is pivotal to the credit:
Source: FY Annual Report 2021
PNC has c.AUD30m in cash/undrawn facilities at its disposal. Net asset per share is sitting at 90.4c, materially above the share price of 46c. In total, net assets sit at c.AUD55m (vs c.AUD64m in PCP).
Extract from the FY21 Annual Report – Note 3 Going Concern
Relative Value
PIOCRE Float 03/22/23
In our view, it is high risk, but picking the bonds up in the low 90s may offer an opportunity to benefit from a newly structured, lower cost capital structure with an improved balance sheet going forward.
PNC does have sufficient cash flow from operations (CFO) and c.AUD30m in cash/undrawn facilities at its disposal to fund its PDP purchasing programme and interest costs over the next 12 months. The outlook for FY22 is reasonable as COVID-19 abates and the PDP portfolios improves following a more solid macroeconomic backdrop.
Chart 1. Key Financials
Source: Bloomberg
Chart 2. PIOCRE Float Spreads
Source: Bloomberg
