Industry continues to grapple with chip shortages

Written by Noor Sehur, Analyst Team Lead || With a quiet primary market amid the earning season, we shifted our focus to secondary situations in Europe, some of which are auto-parts suppliers Adler Pelzer and Standard Profil, German real-estate company Adler Group and Indian-based entertainment company Eros STX.

Yields of B- rated senior secured notes of Adler Pelzer and Standard Profil rose to 5.2% and 7.3%, respectively, as the industry continues to grapple with chip shortages and margin pressure from rising raw material costs. Our analysis highlighted that Adler Pelzer faces many challenges from its high leverage, low equity cushion and weak cash generation, while the company’s appetite for debt-funded acquisitions amid low potential for organic growth leaves investors exposed to priming debt. Standard Profil on the other hand has relatively high margins – although the group burns cash due to heavy interest burden and its small size and lack of economies of scale which translates into high capex.

Investors are also keeping a close eye on Adler Group whose massive adjustments to loan-to-value (LTV), development portfolio valuation and speculated links with Austrian businessmen Cevdet Caner have raised red flags. The group’s BB+ rated 2029 notes declined to 94 and have since then recovered to 95 to yield 3.07%.

Bondholders of ErosSTX £50 million retail bonds contemplate whether to give consent to the group’s proposal to extend bond maturity, among other amendments. ErosSTX told investors significant subsidiaries revenue may not have been recognized in 2020 accounts and said it plans to monetize 46 films to reduce debt burden.

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