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Mobico (MCGLN; Ba2/NR/BBB-) Moody's double-notch downgrade; levels

TRANSPORTATION
  • €31s +50 at Z+296
  • £28s +6 at UKT+195
  • €NC25 perp -1.4pts at €90.9; Z+720 to Feb 2026 1st reset, Z+514 to 2nd reset in Feb 2031, Z+530 to worst (reminder co indicated it will not call it).
  1. The €31s look rich here; Avis (B1/BB-) 29s trade at Z+480 and 30s at Z+500 - that co is straddled with poor BS policy (excess cash flow goes straight to equity holders). You can take a flat step down to Finnair (NR/BB+) that has govvie ownership and trades at Z+250 for 4.7y risk.
  2. Arguably given above unprotected moves, the £28s should go bid here if the 125bp step-up is priced in full. Coupons are annual in November.
  3. We will need to circle back on the hybrid. Moody's keeping the expectation for it to get called is confusing to say the least - obviously large upside if it does but co indicated it will leave it in earnings 3-weeks ago AND had done cash flow forecast to account for the higher interest on reset.
    • The opportunity cost of not refi-ing that (either into a new perp or senior) will only move lower for the co now (vs. facing the T+414 reset) given sell-off in secondary/ratings.
    • Co currently excludes both the debt and interest payments in covenant tests and it indicated that would continue to be the case going forward. We would takes co's guidance over Moody's remarks today and would NOT price to the 1st reset.
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