OHL Memo 070121
- Understand why we see recovery on OHL’s Senior Unsecured Notes (SUNs) at: base case 84%, base case “plus” 110% and “potential” 132%
- Understand how tight we think liquidity really is going into H1 21
- For years, the bull case has been: “OHL is cash rich following OHL Concesiones sale in FY 18; lots of asset value; Legacy Project cash burn coming to an end; litigation risk manageable”. Bear case: “Many European HY construction companies have failed; too much uncertainty from OHL’s governance / litigation risk / Legacy Project cash burn”. Who is right?
- Detailed valuation analysis of Canalejas and Old War Office – analysis of solo entity level balance sheets and project debt; residential vs hotel vs shopping valuations on a per square foot basis and benchmarking against equivalent area prime real estate valuations; estimates of per square foot valuation needed on remaining real estate to be sold in order for OHL to break-even on carrying value of its equity stakes
- Restructuring analysis – UK super scheme / scheme of arrangement; base case, base case “plus” and “potential” recoveries taking into account press commentary on potential restructuring mechanics; new money need; what Multi-Product Financing (MPF) Guaranty Facility lenders likely want
- Analysis of additional asset sale / asset recovery potential beyond Canalejas and Old War Office
- Financial projections (including of liquidity) and DCF valuation of ongoing construction business – base / bear / bull cases
- Canalejas. How many square feet (sq ft) across residential, Four Seasons hotel and shopping centre? How much did residential apartments (“Four Seasons Residences”) sell for on a per sq ft basis? What per sq ft valuation does OHL need on the assets remaining to be sold in order for it to “break-even” vs carrying value of its 50% equity stake and how likely is this vs prime Madrid valuations?
- Old War Office (OWO). Given project debt outstanding and future project debt to be incurred (due to remaining construction costs), what per sq ft valuation does OHL need on OWO (across both the Raffles hotel and luxury residential apartments) in order for it to “break-even” vs carrying value of its 49% equity stake and how likely is this vs prime SW1 London valuations? Key project entities and holdcos through which OHL S.A. owns its stake in OWO and their respective balance sheets. Analysis of project debt – size (relative to drawn amount and remaining construction cost); maturity; loan-to-cost (LTC) permitted; potential issues with milestones, covenants and LTC and renegotiation. Current construction status and opening timetable for Raffles hotel
- How much could OHL recover from its CEMONASA investment?
- How does OHL’s MPF Guarantee Facility work and what risk to its recourse debt and liquidity exists from this? What incentive do MPF lenders have to extend maturity here?
- Under what conditions might OHL’s €140m deposit collateralising its MPF Guarantee Facility be released?
- Besides its deposit collateralising the MPF, how much more of OHL’s cash is likely effectively trapped? How tight was Q3 20 liquidity really and how tight is it going into the usually FCF negative H1 period for FY 21E?
- Besides Canalejas and OWO, what are the key other sources of potential asset sale proceeds / asset recoveries for OHL?
- How much unleveraged FCF has OHL burned over the years and how much is due to ongoing business and not Legacy Projects? Why do we expect this to change markedly going forward?
- What is OHL’s construction business (excluding saleable assets) worth?
- What are the inconsistencies in OHL’s disclosure?
- What are OHL’s key litigation cases outstanding (claims against it by customer and claims by OHL against its customers) and what do we expect from these?
- What is the key risk to our recovery analysis and to the feasibility of any OHL restructuring as a going-concern?
- View, Variant Perception & Recommendations
Business Overview, Analysis & Deep-Dive On Canalejas & Old War Office
Legacy Projects & Litigation
Historic Financials Analysis – Legacy Project vs Regular Business Cash Flow & Key Balance Sheet Items
Base Case – Financial Projections & Valuation
Bull Case – Financial Projections & Valuation
Bear Case – Financial Projections & Valuation