Selecta Memo 050520
- Restructuring playbook for Senior Secured Notes (SSNs) holders – jurisdictional filing expectations; new money need and post-restructuring liquidity; EBITDA potential; expectations for mix of new SSNs and post-reorg equity; exit strategies from post-reorg equity; recovery rate / IRR / money multiple expectations; strategies available to KKR
- Understand our new base, bear and bull case projections (including for liquidity and recoveries) following weak Q5 19 EBITDA and substantially weaker-than-expected liquidity position going into a coronavirus-impacted FY 20
- Understand why Selecta, trading at 3.6x Q5 19 LTM EBITDA represents a deep value opportunity outright and compared to the European #2 player, IVS
- Business analysis – segments, regions, clients, suppliers, substitutes
- Industry overview – drivers; main private and public competitors; regulation
- Pelican Rouge, Argenta Group and Express Vending acquisition analysis
- Understand EBITDA potential with the expected synergies and one-off costs
- Liquidity analysis and remaining liquidity levers
- Understand the capital structure and the key terms of each instrument
- Detailed DCF and trading comparables valuations
- Restructuring playbook for SSNs holders – jurisdictional filing expectations; new money need and post-restructuring liquidity; EBITDA potential; expectations for mix of new SSNs and post-reorg equity; exit strategies from post-reorg equity; recovery rate / IRR / money multiple expectations; strategies available to KKR
- Q5 19 exit liquidity position and EBITDA run-rate and coronavirus (COVID-19) impact on Selecta. Updated financial projections including for liquidity across base, bear and bull cases
- Deep dive comparison of Selecta vs European #2 player, IVS, including cost benchmarking exercise to assess Selecta’s potential EBITDA
- Q5 19 results analysis and comparison to our expectations
- What is the potential impact of COVID-19 on the business, both in the short and long term?
- When do we expect liquidity to break and which additional liquidity levers remain?
- Will the business be able to deleverage post the coronavirus disruption to the extent needed to refinance?
- What recovery can be expected on the Senior Secured Notes (SSNs)?
- What remaining basket availability exists for additional secured debt and why do we not envisage this being used substantially?
- What strategies exist for KKR to recreate value for itself out of Selecta?
- How does Selecta’s cost structure compare to IVS’ and what variability do we envisage to mitigate expected revenue decline in FY 20? Is there scope for EBITDA margin catch-up?
- Why might working capital turn out to be a surprise positive in FY 20 (though we do not include this in our projections)?
- What will be consumers’ appetite to use vending and coffee machines on returning to the workplace and public and semi-public locations as lockdowns ease?
- Who might acquire Selecta?
- Which part of Selecta’s persistent non-recurring items (NRIs) may turn out to be truly non-recurring post COVID?
- View, Variant Perception & Recommendation
- Business Overview
- Industry Overview
- Comparables ─ IVS Group
- Historic Financial Analysis
- Group Structure & Capitalization
- Trading Update ─ ER Q419
- Trading Update ─ ER Q519
- Base Case Forecasts
- Bear Case Forecasts
- Bull Case Forecast
- Liquidity, Capital Markets And Restructuring
- Restructuring Pitchbook For SSNs Holders
- Investment Considerations