- €640m 7.648% FRN - Euribor +462.5 - (issue spread DBR 2027+503bps)
- €400m 4.5% 11/2026 (Issue spread 499bps vs DBR 26)
- £350m 6% 11/2026 (Issue spread 528 vs UKT 2026)
Arrow Global are coming to market to refinance their 2026 maturity debt. The current ARWLN 4.5% 2026 have traded almost 900bps over as recently as July, but a good set of H1 and Q3 results reduced spreads to c.+400bps shortly before the tender for the current notes was announced.
The business is transitioning its focus from an on balance sheet model to a model where the business co invests with private investors in closed end funds. If this works it would make the business less capital intensive over time and income more regular.
This can be seen working so far in their Q3 accounts. Income from fund management activities climbs from £140m in 9M '23 to 193m in 9M '24. This helps operating income swich from a £-25m loss to a £44m profit over the period. Management forecasts that strong growth in funds to continue should capital continue to be successfully deployed into them.
Leverage is 3.6x over the last 12 months vs. adjusted EBITDA. There is clearly a big gap IFRS Operating income (£44m) and adjusted EBITDA (£353m) for the first 9 months of 2024. The secured debt load is currently £1272m.
Fair value will mostly depend on the investors view on
- The continued growth in profitability in the closed end fund part of the business
- The extent to which adjustments to EBITDA in the balance sheet accurately reflects the long term income generating capacity of the business
Should they continue to execute successfully, which should become apparently relatively quickly over the next few years, FV should be in line with other bonds at this rating. Although the risk that isn't the case makes us reluctant to put FV's that low.
The business is clearly trying to capitalise on strong markets and a run of strong results to push refinancing risk from 2026 to 2029, but will incur increased interest costs by doing so. In addition, should this pivot continue to yield such excellent results, one would imagine a more favourable view by the market in several quarters time.
