(Free Content) HY Trade Idea: LOXAM

Issuer	Cpn	Maturity	CCY	S&P	Deal Size	Latest Px	YTW	Z-Spread
LOXAM SAS	4.875	23/07/2021	EUR	BB-	239,300,000	€ 101.500	-15.304	-2893
LOXAM SAS	3.500	15/04/2022	EUR	BB-	300,000,000	€ 102.098	-1.464	-707
LOXAM SAS	3.500	03/05/2023	EUR	BB-	250,000,000	€ 102.123	0.369	-261
LOXAM SAS	4.250	15/04/2024	EUR	BB-	300,000,000	€ 104.718	1.755	156
LOXAM SAS	6.000	15/04/2025	EUR	B	250,000,000	€ 105.125	3.956	376
LOXAM SAS	7.000	23/07/2022	EUR	B	225,000,000	€ 104.092	-18.539	-3488
LOXAM 5Y CDS		06/20/2024	EUR					275

Business Description

LOXAM (BB) is a large equipment rental group offering over 1,500 different types of equipment, with approx. 760 branches, largely in France (65%). Major equipment includes Earthmoving (31% of sales), Aerial Platforms (21%), Building (12%), Handling (11%) and Energy (10%).

Competition is fragmented, LOXAM holds a 3.8% European market share (21% in France). Management owns 88% of the company, 3i 8% and Pragma Capital 4%

LOXAM operates under 3 divisions: Generalist France (approx. 48% of sales), Specialist France (15%) and International (7%), this accounts for 71% of total revenue. LOXAM has over 250,000 customers ranging from individuals to large corporations, around 60% of sales are from the construction and civil engineering sectors. Top 10 customers represent an increasingly large proportion of revenues.

Recent Results (4Q18)

Revenues increased 5% y-on-y although EBITDA fell -4.7% compared to 4Q17. Net leverage of 4.24x (total net debt €2.14bn) was in line with guidance, whilst FCF did increased €7M y-on-y to €40M. Management said that they believed the macro and construction in Europe will remain positive, but this is clearly over-optimistic given the decelerating growth environment. The company wants to deleverage to 4x with management indicating that gross CapEx will be -15% lower y-on-y in 2019.

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Trade Idea

Most of the structure trades to the call, and the company said in terms of refinancing they remain ‘opportunistic’ (which is reliant on market conditions) with the LOXAM 7 22  and LOXAM 4.875 21 (Both 1st call 1/04/2019) most likely to be refinanced.

However, given the company’s sensitivity to macro slowdown and high leverage, investors should take the opportunity to short the credit as global growth fears strengthen. The subordinated B-rated LOXAM 6 25 at 105.125 (3.95% YTW) is an ideal short, whilst investors may wish to express the trade synthetically via the 5Y CDS contract which has traded inside of iTraxx Crossover for the majority of 2019 (see chart, below).

However, one must acknowledge the technical that the French real money investor base, who are typically long LOXAM, can prevent spread widening (please refer to TEREOS short squeeze of October/November 2014).