Tapestry (TPR; Baa2/BBB; double Neg) Update to Pricing

Given the strong rally in rates, we are running through all early call/put situations in consumer with an updated look at what is priced. TPR below - reminder these are bonds issued for acquisition of Capri - if it doesn't close SMR kicks in and will be called back at 101.

• 27s upside/downside on cash px is -2.6/+1.4pts or (ex. carry) has a 65% prob. of deal closing priced.
• 31s upside/downside on cash px is -3.5/+6pts or (ex. carry) has a 39% prob. priced.
• CPRI equities at $32 has a 30% prob. priced.

Above done based on FV's of 3.7% & 4.1% respectively. We have set FV spreads well north of IG rated peers like H&M (+45bps on 31s) and PVH (+40bps on 27s). We have still left it well inside distressed VFC.

Obviously the 31s look better on prob. priced but the total return loss (both are similar high 5% coupon's) is much higher (SD of outcomes >>). Credit positive factors for TPR are its 19% EBIT margin (semi-lux) and 25bp/agency coupon step-ups on HY rating up to a max 200bps. FV should be priced to BBB- ratings though (raters will likely downgrade on deal closing).

Capri equities are the most liquid measure of pricing and should be used as the north-star - it is quiet pessimistic (FV $22.5/share) BUT it's actual prob. is likely higher than what we have quoted given markets may be pricing a "discounted" deal price (agreed on is $57/share). That's partly on Capri standalone performance getting worse since TPR agreed to buy it - not a issue we should ignore in credit either; capri is not far off TPR's size ($6.5b vs. $5b sales) and is lower margin (18% vs. 10%).

Timeline for decision from FTC we see around late Sept- mid Feb. Based on that neither gives carry protection from total return losses on a 101 early call; breakeven early Feb for the 27s and mid march for the 31s. I.e. investors should be willing to bear (potential) total return losses before year end.

Capri reports 1Q results (4m to June) on August 8th (this Thursday) after the US close while Tapestry brings FY results (to June) a week later (15th) in US pre-market.