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International Distribution Services (IDSLN; NR/BBB Neg/NR)

CONSUMER CYCLICALS
  • EP group using £2.3b of debt (+4x leverage on FY24 EBITDA) to fund the £3.6b takeover looks like tough ask on BS to stay IG rated here (though its confirming that is the intention).
  • IDS currently holds £1.5b in bonds & £1.4b in leases (gross £2.9b) against £900m in cash. Against adj. EBITDA of €500m it left it gross 6x levered, net 4x. Earnings is expected to climb ~70%yoy to consensus £965m - if that does play out, even on EP debt load, leverage will move lower from last yr in gross terms.
  • No disclosure on the form of debt it plans to add, current bonds all Sr unsecured.
  • Natural hedge on screen cheap for 28s (from HY ratings) is adding long 26s given CoC par put (cost of the hedge is a 50bp shaving on 2yr carry).
  • We don't see much need for a hedge. 28s priced in HY ratings already at Z+160. More of a issue for those doubting headline performance/recovery.
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  • EP group using £2.3b of debt (+4x leverage on FY24 EBITDA) to fund the £3.6b takeover looks like tough ask on BS to stay IG rated here (though its confirming that is the intention).
  • IDS currently holds £1.5b in bonds & £1.4b in leases (gross £2.9b) against £900m in cash. Against adj. EBITDA of €500m it left it gross 6x levered, net 4x. Earnings is expected to climb ~70%yoy to consensus £965m - if that does play out, even on EP debt load, leverage will move lower from last yr in gross terms.
  • No disclosure on the form of debt it plans to add, current bonds all Sr unsecured.
  • Natural hedge on screen cheap for 28s (from HY ratings) is adding long 26s given CoC par put (cost of the hedge is a 50bp shaving on 2yr carry).
  • We don't see much need for a hedge. 28s priced in HY ratings already at Z+160. More of a issue for those doubting headline performance/recovery.