TRANSPORTATION: Evri (Secured; B2/B+) Notes on co

(NOT Everi/EVRI - who is a $ issuer gaming co. Evri/issuer was previously called Hermes)
(Apollo deal)

£500m 7NC3 Snr Secured Fixed (144a/RegS)

• Covenants (Moody's); pari-passu debt up to senior-secured leverage of 4.9x, unsecured up to net 5.9x. Asset sale proceeds only required to be applied in full when total leverage is >=4.15x. Leverage ratio's can be based on "run-rate" adj. EBITDA.

This is funding for Apollo's £2.7b acquisition; £1.4b in debt (£900m in TL's) and £1b in equity. Pro-forma net leverage at 4.9x, Moody's gross adj. at 6.3x (it uses EBITDA of £288m vs. company's calculated "run-rate" EBITDA of £350m) but Moody's expects natural deleveraging ahead on "at least 10%" growth in revenue AND EBITDA - recent history meets that bar. Rating thresholds are <5.25x and >6.25x. We see limited rating upside given under Apollo ownership (S&P explicitly says this). Summary of fundamentals below - single country exposure and some international trade exposure (including to Chinese E-comm sites) at 17%. Risks aside recent performance is impressive (at the cost of peer issuer in £IG, IDSLN) with long-term and inflation protected contracts with large clients giving stability to that. Note Amazon is a competitor and it delivers majority of goods bought on its own platform. Starting in 2020 it now offers amazon shipping as a stand-alone service as well.

• E-commerce operator with focus on B2C in UK, delivering low-value parcels (e.g. clothing). Largest market share is in international inbound (into UK) where it counts clients including Temu & Alibaba - its not the best segment for margins. Largest share of revenue is still from local corporate (60%) where it holds a 25% share.
• Average contracts are 3.4yr, top 10 clients average a longer 10.3yrs and make up 39% of revenue. 90% of top-10 also have inflation pass-through clauses, 80% min. volume commitments.
• £1.7b in revenues delivering 761m parcels. For comparison IDS's UK arm and the countries USO - Royal Mail - made £3.9b in parcel revenue last year from 1.2b in parcels.
• Above may look lacklustre on premium/pricing exposure but reminder Royal Mail has well publicised profitability issues (it's running operating losses currently). Evri made £290m in adj. EBITDA (at a 17.3% margin) and £226m in operating cash flows.
• Adding to that Evri is CAGR'ing revenue at 17% since covid with estimated strong market share gains (most seems to be coming from Royal Mail). It is reporting a 28% market share and indicating it is the #2 player in the year.
• It sees market CAGR'ing at a 7% over next 5-years (vs. 8% last 5-yrs) on continued e-commerce penetration; it estimates UK penetration (ex. F&B/grocery) was at 43% last year but will move to 51% in 5yrs. It estimates UK addressable market as 2nd largest in Europe (2022 parcels at 3.9b vs. Germany at 4.2b and France at 1.7b).
• It's indicating recent capex investments that leave peak day utilisation at only 79% means a pullback in capex ahead and evidence of that in FY24. Maintenance capex is a small ~1% of revenues. 1Q25 performance was strong (volumes +11%, revenue +12.5%, EBITDA +38%, reversal to positive operating cash flows at £33m).