HISTORICAL TRADES

Short Wind Tre bonds – results catalyst

2018
Background-
 Wind is a telecom company in Italy which was formed through the
merger of Wind Telecomunicazioni SpA and Three Italia in 2016.
 The company provides fixed line, mobile and Internet services and
plans to invest EUR 7bn in its digital infrastructure over the coming
years.
 It will likely take some time for significant synergy benefits and cost
savings to accrue, while the group integrates the operations of both
entities.
 In November 2017, the company refinanced all its debt into a senior
secured structure with leverage of 4.3x pre synergies
 Company’s Q3/Q4 2017 results were weaker than market expectations
ahead of Iliad’s launch in the market
Trade / Opportunity-
 We shorted WinTre 3.125 2025 bonds around Jan 2018 at a price of
95 and yield of 4.1% as the market was mispricing the credit risk in
our view.
 We expected worsening results in 2018 vs. 2017, as a result of
increased competition and the pressure from “low cost” offers from the
Iliad launch
 We expected WinTre to lose the most market share once Iliad launched
commercial services and thus impacting the top line and EBITDA
margins
 The company had already lost 1.8m subscribers in 2017 before the
launch of Iliad and we were expecting losses in excess of 2017 for
2018
Outcome
 As expected, the company reported weak 1Q results.
Revenues declined 8.9% y-o-y to EUR 1,409 mn while
EBITDA fell 5.2% to EUR 489 mn.
 Mobile performance was very weak with 7.9% decline
in service revenues and fixed-line service revenues fell
3.7%.
 Mobile KPIs were weak. The mobile customer base
declined 5.5% y-o-y to 29.2 mn, while ARPU dropped
1.8% to EUR 10.8 reflecting stiffening competition.
 We did not expect the company trends to get better in
the next few quarters and the bonds traded down to 80
by end of June. We covered some of the short...but then
the unexpected happened – Hutchinson agreed to buy
the remaining 50% of the company from Vimpelcom
pushing the bonds up to 93. WE covered some of our
short at the new levels but still left 40% of our original
short outstanding.
 We did not expect Hutchinson to refinance the capital
structure or guarantee the bond. Since then the bonds
have been drifting down as results have gotten worse
thru the year.
 Long Matalan bonds – Refinancing special situation 2018
2017
Background- Outcome
 Matalan is the UK’s leading out-of-town value apparel, footwear  Matalan reported strong Q2/17-18 results, with both
and homeware retailer. As of late 2017, it operated 227 stores in
revenues and EBITDA materially improving y-o-y. This
the UK. It also has an e-commerce platform.
was supported by l-f-l sales growth of 4.8%, strong
 In recent years, the company has focused on strengthening the growth in online sales, a greater share of full-price sales,
management team. The 12-strong team has extensive experience
improved intake margins, and lower costs. 
across the retail, service and consumer goods sectors.
 However, the group remains reliant on the UK, and its
 In line with the earnings trend, OCF improved y-o-y, and
discretionary product offerings are vulnerable to economic cycles. net leverage of 4.2x was down 0.7x q-o-q.
Furthermore, the UK retail market is very competitive and
challenging.
 We expected the earnings recovery to continue in H2/17-
18, resulting in net leverage of c. 4x by FYE 2017-18.
Trade / Opportunity-
 In January 2018, the company announced another set of
 We went long the senior secured 6.875 2019 bond which were
yielding 11% at a price of 92 in May 2017 strong Q3 results and launched a bond refinancing
transaction to refinance the capital structure 1.5 year
 We viewed favourably the company’s strong position as a leading ahead of the maturity in 2018 with a £330m 1st lien and
out-of-town fashion retailer and the low-rent business model and
expected modest positive trend in sales and earnings, on account
£150m 2nd lien.
of strong growth in the online channel, new store openings, an  The bond were called at 101.72 in January 2018 and
improved stock position and tight cost control. returned an IRR of 22%
 While the earnings and credit profile had improved over the last
few quarters – the main risk involved the refinancing of the capital
structure (comes due in 2019).
 We expected the recovery to continue and the company to be in a
position to refinance the capital structure early.
 Long RBS AT1 bonds – restructuring play
2017
Background- Outcome
 RBS one of the UK’s largest banks had undergone  RBS was a very well capitalised bank and continued to
restructuring for the last few years – improve efficiency, generate excess capital in 2018 – thus solvency was no
optimise its portfolio, focus on its main market and reduce more an issue for the financial institution
capital markets revenue exposure
 The settlement was much less than the overall market was
 The company has made decent progress and its senior ratings
expecting at $4.9bn announced in May 2018
had been upgraded to investment grade
 In addition, the company which had been mired in lawsuits
 The company committed to maintaining 13% CET1 and
was settling some of them and moving on to continue to reduce opex over the next few years
 One last major litigation was left – dispute involving the DOJ  As expected, post the settlement the spreads between
over US RMBS RBS and Lloyds AT1 compressed over time
Trade / Opportunity-  We sold the bond post the DOJ settlement and generated
 We went long RBS 8.625% AT1 bond callable in August 2021 an IRR of 12% over 12 months.
bond which were yielding 7.5% at a price of 104 in March
2017 and trading much wider to the likes of Lloyds
 We invested in the bonds with the thesis that the company will
be able to weather the DOJ fine and will continue to generate
decent organic capital and the CET1 ratio >15% over the next
few years
 Analysts had a range of USD 5bn -12bn for the DOJ fine
which we believed would be closer to the lower end based on
recent similar settlement cases
 Long Dell 6.02 new issue – “mis-priced NAV” and event
2016
Background- Outcome
 Dell Technologies was created through the acquisition of EMC  Market came to the realisation that even though some of
Corp by Dell Inc and is the world’s largest privately-controlled
the business were in secular downturn but the combined
technology company.
business was a growth business with synergies coming
 The combined entity offers hardware solutions across PC, storage thru
and server, as well as software solutions through VMware, Secure
Works, Pivotal, Virtustream and RSA.  Cross selling opportunities within the Dell server and
 On a pro forma basis, the company generated $75bn of LTM
EMC storage business was evident
revenues and $10bn of LTM adjusted EBITDA.  The IG tech sector had been challenging for the market in
 Dell Technologies also holds leading market shares in multiple recent years owing to event risk including company
markets, including #3 in PCs (16% market share), #1 in Storage splits, large M&A and higher shareholder returns – this
(30% market share) and #1 in server (19% market share) seem to have also normalised in 2017 resulting in tighter
Trade / Opportunity- spreads
 We went long Dell 6.02% 2026 bond (issued at +425) in June  The Dell bonds reached a spread of 245 in August 2017
2016 on the basis that as a result of the bond technicals the spread which is where we exited the trade
is wider than for comparable companies
 The pro forma leverage thru the bonds was going to come down to
4.8x from the 5.7x starting point within 6-12 months
 Strong cash flow generation, synergies and margin expansion
along with divestitures would put Dell on a rapid deleveraging
path in our opinion
 Attractive valuation and belief that event risk was skewed
positively to the credit
 Long Actavis bonds – M&A and ratings event
2015
Background- Outcome
 Actavis completed the acquisition of Allergan in March 2015  As expected, the Teva transaction closed in August 2016
by paying approx $70.5bn even though there were some delays to the transaction
timeline – we had spoken to consultants and various
 The company was rated the lowest rating on the IG scale and
advisors to get comfortable with the transaction
the market worry was that the company could be downgraded
to junk as a result of the acquisition  The ratings were upgraded by S&P in August 2016 and
 Even thought the company had guided to protect its IG rating put on stable by the 2 other rating agencies
– market was very sceptical and resulted in the bonds trading  The spreads tightened over 2016 as we had expected and
much worse than comparable IG companies reached a low of 160 to the benchmark in August 2016
 The company in July 2015 had announced the sale of its vs. the 235 at the time of trade initiation
generic business to Teva for approx $40.5bn  We exited our position in September 2016
 IRR on the trade was around 9%
Trade / Opportunity-
 We went long the Actavis 3.85 2024 bonds around September
2015 at a price of 98 and spread of 230 to the benchmark
 The bonds were trading wider as a result of the market
weakness and also the probability that the deal with Teva
might not close
 We were of the view that pro forma company would delever
materially and also would be able to protect its IG rating and
close the transaction with Teva
 Long Kaupthing Bank claims– distressed investment
2013
Background-
 Kaupthing was the largest Icelandic bank which collapsed at the
height of the Lehman crisis. The resolution committee
(“ResCom”) under special laws passed by the country was
appointed to deal with the winding up of the bank.
 In May 2009, the winding up committee was appointed to deal
with the claims process. In Jan 2012, the ResCom was
dissolved and all tasks have now been undertaken by the
winding up committee.
 The winding up committee is supported by asset managers,
finance and legal team to help maximise the pay outs to the
creditors.
Trade / Opportunity-
 Buying the unsecured claims at around 24 cents for a base case
return of 37 cents and an upside return in the mid 40s.
 Recovery is based on the assumption that assets will recover in
value over time and that some of the recovery estimates from
the ResCom maybe be conservative.
 We performed extensive due diligence to understand the bank
and the assets it held at the time of the bankruptcy. This
involved various due diligence trips to Iceland to meet asset
managers and the bank representatives. We also met with
numerous former employees who were close to the assets of the
banks
Outcome
 The main assets of the bank comprise of cash in hand, loans
to customers, Shares in unlisted companies, 87% stake in
Arion Bank (New bank established post the bankruptcy) and
derivatives.  
 Asset valuation as per the ResCom totals ISK 887 bn. Our
base case assumes a higher recovery on loan to customers
(31% vs. Rescom 21%), higher value of the stake in Arion
and better recovery on the share value of unlisted assets. Base
case asset valuation of ISK 1.2 trillion.
 The liabilities of the estate are being managed thru a formal
process by the winding up committee. As of December 2009,
claims worth ISK 7.3tn had been lodged. Over time, this has
come down to ISK 5.6tn – of which ISK 2.9tn have been
accepted and ISK 2.7tn have rejected. Majority of the claims
are unsecured claims .
 The estate was in wind up and exited through composition
with the creditors which was the favoured way. The pay out is
happening over a number of years from the estate.
 The unsecured claims traded up to 36 cents on the once the
estate was wound up as a result of the composition with the
creditors.
 The investment returned an IRR of 21%.
 BES – capital structure arbitrage based on event
2012
Background-
 Portugal took a bailout from the Troika in May 2011 and
also earmarked €12bn for the banking sector
recapitalisation
 The Bank of Portugal had already mandated the
Portuguese banks to bring their CT1 ratio to 9% in 2011
and 10% in 2012
 The EBA performed stress tests based on MTM of
sovereign portfolios within the banking books as of Sept
30, 2011 and asked banks to get to 9% by June 2012
 BES announced a deficiency of €687mm to get to the 9%
CT1 ratio
Trade / Opportunity-
 We bought the sub debt and sold the shares to book the
arbitrage between the two and created profit of between
5-8 bond points over the course of 6wks
 We knew the company would have to raise funds either
thru deleveraging, new equity or liability management
 Performed bottoms up fundamental analysis on valuation,
loan book and the interest margin. Had been in regular
touch with the company and its management.
Outcome
 The company announced a debt for equity targeting the
T1 and UT2 securities of the company which were
trading in the 35-45 range
 Located borrow on the stock on the assumption that if the
company did a potential equity raise it would present an
opportunity
 Company’s share price was €1.75 the day they announced
the debt for equity swap. Company’s proposal was going
to increase the share count by 437mm shares (35%
dilution)
 We got ahead of the curve in terms of the analysis and
also knowing that the shareholders in the bank would
support the increase in capital
 There were holders of the debt who per their mandate
could not hold shares and the bet that the share would fall
as a result of the huge dilution provided us with the
arbitrage opportunity
 The new shares we received as part of the exchange
covered our short position
 IRR on the trade was >200%
 Lloyds – hard “liability management” catalyst
2011
Background-
 Lloyds is the largest retail bank in the UK post the acquisition of
HBOS in early 2009. The company’s brand comprises of : (a)
Lloyds TSB (b) Halifax (c) Bank of Scotland (d) Clerical
Medical and (e) Scottish Widows
 As per the EC requirement for state aid and competition, the
company has to sell approx. 600 branches to a third party as a
result of the HBOS acquisition. In addition, the company was
mandated to stop dividend payments on certain subordinated
securities (T1 and UT2) and also restricted from calling
securities (including LT2 instruments) for a period of 2 years.
Trade / Opportunity-
 We bought 2012 callable LT2 debt at an average price of 74
yielding close to 10% compared to fixed maturity LT2 debt
trading around 11% in Oct/Nov 2011. We partially hedged the
bond position thru sub Lloyds CDS.
 The EC restriction started in Jan 2010 and ends in Jan 2012. The
LT2 bonds had traded as high as 90 in the summer of 2011 and
as a result of the renewed focus on sovereigns and banks had
fallen to the low to mid 70s. The assumption being that banks
will not be calling the LT2 securities as and when they are
callable.
 Legacy LT2 securities have generally been 10 year NC 5
instruments with a step in coupon. Some of the securities were
trading close in yield vs. fixed maturity LT2 instruments and
thus you were getting the call option for little to no premium
Outcome
 Performed deep fundamental analysis of the company,
including stress testing the asset side of the balance sheet and
incurring additional losses. Also, spoke to capital market
participants to form a view on the bank and its funding going
forward.
 The market perception on LT2 institutional securities is that
banks would call them at the first call date (usually after 5
years) when the step up applies.
 The bet we were making was (1) Lloyds is a large UK
institution that would care about its reputation with respect to
call or non-call (2) instruments would be LM rather than called
(3) would likely happen post the EC restriction is lifted at the
end of Jan 2012 (4) the bank needed to issue new style LT2
instruments and thus would not alienate its investor base
 Potential reasons for the bank to do nothing were – (a)
deteriorating macro trends and increased funding costs (b) it
was cheap source of funding (c) regulator would not allow to
call or LM (d) possible extension of the EC restriction
 In December 2011, the company launched an exchange offer
for all 2012 LT2 callable bonds at a price which was a
premium of 5 points. They exchanged the bonds into new LT2
instruments paying between 875-1,000 bps over mid-swaps.
 We exchanged and the new € notes are trading around 105. We
exited the investment at in early 2012 and generated an IRR of
115%.
 Eircom – capital structure arbitrage via CDS flattener
2010
Background-
 Eircom is the Irish incumbent telecom with approx. 68% market
share (based on revenues). Company provides a comprehensive
set of fixed line voice, data, internet and mobile services
 Company was taken private thru an LBO and since then has
exchanged hands multiple times. Each time has been levered up
as a result of the new owner
 STT acquired the parent company along with the ESOT.
Transaction closed on 4th January 2010.
Trade / Opportunity-
 We bought 2yr CDS and sold 5yr CDS at a spread of between
18-20 points. Trade was initiated in June 2010. (Flattener of CDS
curve)
 Performed deep fundamental analysis of the company, market,
spoke to the regulators and competitors to form a strong view of
the credit
 Investors were being complacent on the company’s growth
prospects and the strategic rational for STT (subsidiary of the
Singapore Govt) buying the company for only €40mm
 Market believed that STT would tender for cash the junior parts
of the capital structure and inject cash to avoid tripping the
covenants – Contrary to our view
Outcome
 The trade was predicated on our strong conviction that the
company’s operational performance will continue to
deteriorate rapidly in the competitive Irish market –
contrarian view to the market
 Net Leverage of the company thru the debt structure was
5.7x at the time of the inception of the trade. We modelled
this to be north of 6x in 2yrs time – clearly unsustainable
and higher than public valuations of more diversified
European Telcos.
 Where are we today – the company has agreed a covenant
waiver extension with the senior lenders and has put itself
up for sale. It has received 2 bids – one from the 1L and
one from the 2L holders and no bid from STT/ESOT.
 Market expects restructuring trigger to happen and the 2
vs 5yr CDS trade at a differential of 4 – providing us 14-
16 points of profit on the trade so far. We expect the gap
to go to zero
 We took some profits at the current levels and as expected
the restructuring happed and the differential closed to zero
 IRR of 40% thru the life of the trade
 BCP – capital structure arbitrage investment
2010
Background-
 BCP is Portugal’s largest privately owned bank and operates under the
commercial brand of Millennium BCP. Its operations are divided
between Portugal (78%); Poland (12%); Greece (1%); Angola (3%) and
Mozambique (7%).
 Domestic retail banking is the largest contributor at 50.3% to income.
The company has been in the process of restructuring its operations and
sold its investments in Turkey and USA 2010.
 The company has a strong domestic franchise – market share of 22% in
customer deposits; 25% in customer lending; 18% in factoring; 20% in
real estate.
 At the end of Q3 2010, the company had a CT1 ratio of only 5.6% and
a T1 ratio of 8.5%
Trade / Opportunity-
 We bought the credit thru being long sub CDS at 1,700 and sold equity
(0.58p – P/B of 0.6x) against it in a ratio of 2.5x.
 There was talks about imposing losses on Senior bank bonds in
November 2010 thru the use of ESM in 2013. This spooked the market
and the CDS in both Senior and Sub bonds widened significantly.
 We performed bottoms up fundamental analysis on valuation, loan
book and the interest margin going forward to form a strong view on
the credit.
 In addition, Ireland was also in the middle of requesting a bailout from
the Troika which made the markets even more nervous with regards to
banks.
Outcome
 Since October 2010, the equity had out performed credit by
a ratio of 2.5x (i.e. sub credit was wider by 36% vs. equity
being down only 15%)
 The reason for these were that the credit market had reacted
much quicker to the news about losses being imposed on
Senior bondholders than the equity market. In addition, the
Ireland bail out was also not helping credit spreads.
 Value drivers for the trade – (a) The bank which had a very
low CT1 ratio possibly could decide to stop paying
dividends (b) Might do a highly dilutive rights issue to
bolster its equity ratios (c) If there was a bailout of the
bank, the shareholders would be bailed in (d) we believe the
current credit underperformance was a result of panic in the
credit markets rather than fundamentals and the relationship
should normalise over time
 Over the course of the next 3 months, the CDS spreads
came in from 1,700bps to 1,000bps and the equity was
down from 0.58p to 0.56p per share. So a return of 40% on
the CDS trade and 4% on the stock short
 We entered the position in early December 2010 and exited
in early February 2011
 IRR on the trade was 125%
 Long Wind Hellas – Stressed restructuring investment
2009
Background-
 Wind Hellas is the 3rd largest mobile operator in Greece. The
company bought the 4th telecom operator, Q Telecom, in Jan 2006,
which focused mostly on the prepaid segment.
 The company was bought by Weather Investments in 2007 for a
equity consideration of €500mm and subsequently Tellas, the fixed
line operator, owned by Weather was merged in to Hellas to create a
business which provided mobile, fixed line and broadband services.
 The company’s capital structure comprised of super senior RCF
(€250mm); Senior Secured debt (€1.2bn); Unsecured debt
(€355mm) and sub debt plus PIK (€1.4bn). Net leverage was a high
7.8x thru the structure.
Trade / Opportunity-
 We bought the senior secured FRNs at prices in the mid to high 60s
yielding 19% for senior secured paper.
 As valuations crashed post Lehman, and recession became apparent
in most economies, the mobile operators started a price war
beginning Q1 2009 where by some offers were being priced around
€1 / month. These offers lasted 12 months and started the rapid
deterioration of ARPU for the Greek operators.
 In addition, the MTR cuts were also starting to impact the operations
of Wind Hellas and the debt structure became unsustainable.
 We performed extensive due diligence to understand the company
and its positioning within the mobile sector in Greece. We also
realised that the company would have to undertake some sort of
restructuring to cut debt to a sustainable level in order to be able to
compete with likes of Vodafone and OTE.
Outcome
 We positioned ourselves in the bonds in May/June 2009.
 The positives were – (a) Well known brand in Greece (b) Merger
with Tellas would provide the growth impetus (c) Shareholder
with deep pockets (d) Restructuring catalyst (e) creating the
company on a MV basis at 2.6x
 The negatives were – (a) deteriorating macro trends and increased
competition (b) impact from MTRs, bad debt and increased taxes
(b) No maintenance covenants in the FRNs (c) no equity left in
the company (d) low FCF (e) untested Greek jurisdiction for
restructuring
 The company started to feel the impact of the economy,
competition, MTRs in 2009. It reported a drop of 18% in
EBITDA for 1H 2009. In August 2009, the company launched a
restructuring of the company by asking for 3rd party interest to
buy the shares of Hellas.
 We were part of the restructuring committee and involved in
negotiating a deal with the eventual buyer of the company
(Weather Investments). Hellas shares were sold to a new
company owned by Weather, which reinstated the RCF, Secured
debt and the Unsecured debt. The sub debt was left behind and
the entity filed for bankruptcy.
 The terms of the debt were improved from E+350 to E+600 post
restructuring and we also received a fee. The Senior secured debt
traded up to 90 providing us with an IRR just north of 100%.
 Long Mayflower claims– distressed investment
2006
Background-
 Mayflower was a leading supplier of automotive body systems and
a vehicle manufacturer. The company had operations in Europe and
US.
 The company designed, engineered and manufactured car bodies ,
light truck and sport utility vehicles. The company also provided
vehicle conversions.
 In March 2004, the company announced an accounting irregularity
which resulted in net debt going up. The company’s banks decided
not to extend credit to the company which resulted in the company
having to file for administration.
 The company’s three UK subsidiaries appointed administrators.
Trade / Opportunity-
 We bought the secured debt in the form of RCF and Private
placements at an average price of 20c on the dollar.
 The company had good assets which could be sold piecemeal to
different buyers to maximise the return for the creditors.
 The play was to buy liquidation claims from the banks and other
creditors at a discounted price to actual realisation. Also in most
liquidation cases, the liquidator usually assigns a very conservative
valuation to the assets and hence recovery.
 We performed extensive due diligence to understand the company’s
assets and potential buyers in the market for the different assets.
We did a sum of parts to value the asset base and the recovery was
much higher than the current market price of the claims.
Outcome
 Our expectations on recovery was low 30s in the next 6-9
months depending on certain legal issues that needed to be
sorted (validity of floating charges)
 The liquidator had sold some of the UK assets at a much
higher price that what was reported in the earlier liquidation
reports- this also provided us with some comfort that the
valuation in the liquidation report was on the conservative
side.
 So the big bet was what the US business was going to be
sold for and if the buyer would keep an escrow of the
proceeds. The US business was sold for GBP 43.3mm which
was much higher than our base case scenario of GBP 36mm
 The main assets that were sold:
 Trans bus International sold for GBP 41mm
 MVS (Wind turbine installation ship) sold for GBP 12.6mm
 MVS UK was sold for GBP 13.6mm
 MVS US was sold for GBP 43.3mm
 The sale of the assets took longer than we had anticipated
but resulted in a much higher recovery for the investment
 We recovered 37c on our initial outlay of 20c giving us a
substantial profit and IRR of 48%