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High yield bonds
Abengoa: First milestone in sight
24 September 2015
Chief Investment Office WM
Jayadev Mishra, CFA, analyst, [email protected]
• Abengoa announced plans today to hold an Extraordinary General
Shareholders’ Meeting (EGM) on 10 October to approve a capital
increase of at least EUR 650m. This move takes the company closer
to the first milestone we identified (see "Abengoa: Watching out
for key milestones," 17 August) and paves the way for further
improvement in its credit quality.
• The proposed capital increase is being underwritten by a group of
banks, controlling shareholders and funds advised by Waddell &
Reed Investment Management. Media reports attribute the delay in
reaching this agreement to prolonged negotiation of terms among
the controlling shareholder family.
• The announcement contains several other important actions that
Abengoa will undertake to improve its capital discipline and
corporate governance, all of which are credit supportive, in our
view. But executing them will remain a challenge for the company.
• Abengoa's bonds jumped sharply after the announcement but we
maintain our attractive recommendation on select bonds (see Table
1). The 2016s are now trading close to their fair value, while most of
the other bonds still have some room for price recovery, in our view.
First milestone in sight - capital raising
We highlighted three key credit milestones for Abengoa in our note on 17
August. The first was Abengoa raising EUR 650m of capital by October.
While the group didn’t outline any official timeline for the exercise, we
considered a near-term solution necessary to calm widespread concerns
about its liquidity. Today's announcement should end those concerns. The
proposal will be put to vote at the October 10 EGM, which is a mere
formality in our view. The deal is being underwritten by a group of banks
(HSBC, Credit Agricole and Banco Santander), which are subscribing to
EUR 465m of class B shares; the founding shareholder family Inversion
Corporativa, which is subscribing to at least EUR 120m of class A and B
shares; and Waddell & Reed Investment Management, which is subscribing
to EUR 65m of class B shares.
Update on second milestone - asset disposals
Abengoa confirmed that its previously announced EUR 500m asset disposal
plan has already been launched. Fifty percent of the proceeds are expected
in 4Q and the remainder in 1Q 2016. The plan includes not just sales under
the Right Of First Offer (ROFO) program to Abengoa Yield, but the disposal
of a diverse range of assets, including gas-fired plants, solar plants and
biofuel facilities. The group now targets a further EUR 300m divestment
next year as a part of its asset-rotation strategy. Separately, it has now
identified the sale of some or all of its stake in Abengoa Yield as a neart
High yield bonds
Abengoa: First milestone in sight
24 September 2015
Chief Investment Office WM
Jayadev Mishra, CFA, analyst, [email protected]
• Abengoa announced plans today to hold an Extraordinary General
Shareholders’ Meeting (EGM) on 10 October to approve a capital
increase of at least EUR 650m. This move takes the company closer
to the first milestone we identified (see "Abengoa: Watching out
for key milestones," 17 August) and paves the way for further
improvement in its credit quality.
• The proposed capital increase is being underwritten by a group of
banks, controlling shareholders and funds advised by Waddell &
Reed Investment Management. Media reports attribute the delay in
reaching this agreement to prolonged negotiation of terms among
the controlling shareholder family.
• The announcement contains several other important actions that
Abengoa will undertake to improve its capital discipline and
corporate governance, all of which are credit supportive, in our
view. But executing them will remain a challenge for the company.
• Abengoa's bonds jumped sharply after the announcement but we
maintain our attractive recommendation on select bonds (see Table
1). The 2016s are now trading close to their fair value, while most of
the other bonds still have some room for price recovery, in our view.
First milestone in sight - capital raising
We highlighted three key credit milestones for Abengoa in our note on 17
August. The first was Abengoa raising EUR 650m of capital by October.
While the group didn’t outline any official timeline for the exercise, we
considered a near-term solution necessary to calm widespread concerns
about its liquidity. Today's announcement should end those concerns. The
proposal will be put to vote at the October 10 EGM, which is a mere
formality in our view. The deal is being underwritten by a group of banks
(HSBC, Credit Agricole and Banco Santander), which are subscribing to
EUR 465m of class B shares; the founding shareholder family Inversion
Corporativa, which is subscribing to at least EUR 120m of class A and B
shares; and Waddell & Reed Investment Management, which is subscribing
to EUR 65m of class B shares.
Update on second milestone - asset disposals
Abengoa confirmed that its previously announced EUR 500m asset disposal
plan has already been launched. Fifty percent of the proceeds are expected
in 4Q and the remainder in 1Q 2016. The plan includes not just sales under
the Right Of First Offer (ROFO) program to Abengoa Yield, but the disposal
of a diverse range of assets, including gas-fired plants, solar plants and
biofuel facilities. The group now targets a further EUR 300m divestment
next year as a part of its asset-rotation strategy. Separately, it has now
identified the sale of some or all of its stake in Abengoa Yield as a neart
