Deutsche Bahn (Aa1/AA- Pos/AA+) desperately needed cash coming (100% Government Owned)
For DB longs, management has repeated in August/1H results " proceeds from a potential sale of DB Schenker should remain entirely within DB Group, and contribute to a significant reduction in DB Group’s debt." - as you would hope.
It had net €37b (€42.8b gross) debt as at June against €2.9b in EBTIDA last year - 65% of which came from Schenker. We see current 12.8x leverage moving to 23x pro-forma assuming all Schenker proceeds go to debt paydowns. Even with Schenker it has run operating losses the last two years in the ~€1b handle while interest costs have been €500-600m/yr. 1H results did not point to any recovery; Ex. Schenker, group earnings (EBITDA) was €390m (-67% yoy). The €49/month Deutschland-Ticket (unlimited domestic travel) did boost passenger numbers by 14% - impact on revenues and profitability seem mute.
How this co is standalone A3/BBB is a wonder for us. 5-notch uplift from baseline at both raters for Germany Government ownership. S&P saw the prospect of increased hand-holding as enough to move to positive outlook last month - DB mgmt echoed that in 1H earnings "in 2024, we will receive about 60 percent more funding from the Federal Government for infrastructure than in previous years. A similar level can also be expected for 2025 and 2026.".
Re. credit seniors look asleep and comments like S&P's from last month will help it stay that way. The beta will be in the crossover rated NC5 perps that trade at Z+214, +180bps wide of seniors. It will face what looks like a now (financially) attractive reset to 5Y MS+189 - it was issued on A2/BBB ratings vs. Baa1/BB+ now.