Wed 02/17/2021 02:58 AM
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Relevant Documents:
Interim Q3 Report
Paragon November Presentation
H1 Results Presentation
Annual Report 2019
Press Release February Voltabox
Press Release December Voltabox

Investors are monitoring the bonds of German automotive supplier Paragon in relation to the sale of a stake in its subsidiary Voltabox, sources told Reorg.

Both the group's 35 million Swiss francs (€32.5 million) and €50 million bonds have risen a few points since the group announced on Wednesday, Feb. 10, that it has completed the due diligence regarding the sale of an 18% stake in Voltabox. The CHF bond gained more than 10 points to 55, while the EUR bond increased 15 points to about 75 since the beginning of February but are hardly trading, sources said. Continue reading for our EMEA Middle Market team's update on Paragon's bonds amid the sale of its stake in Voltabox, and request a trial for access to the linked documents as well as our analysis and reporting on hundreds of other merger and acquisition processes in the region.

According to sources, Voltabox’s buyer, a Swiss investor, may purchase more than 18% of Voltabox’s shares upfront, and then reach up to 32% of the company’s share capital ownership at a later stage. The purchase price would be at a premium relative to Voltabox’s current market capitalization of about €81.2 million, sources added.

The initial sale agreement for Voltabox included the granting of call options for acquiring further shares of up to about 32% of Voltabox’s share capital owned by Paragon. Before the transaction was announced, Paragon held 57.8% of Voltabox, which declined to 54.5% as of December 2020. Paragon said it expects to complete the Voltabox transaction in March. In December, the group said the investors could eventually acquire up to 50% of the share capital but that Paragon would retain a small stake for a while before exiting the investment completely.

The asset sale proceeds will be used to invest in the automotive business and repay liabilities, which includes repaying 15% of the nominal value of the CHF 35 million bond, according to the company’s 2019 report. The group said it will repay the remaining outstanding bonds without further notice in the amount of CHF 29.75 million on the date of the final maturity.

Meanwhile, the group is considering different options on how to tackle its €50 million bond maturing in 2022, sources said.

In a recent update, Paragon forecast 2021 automotive revenue of about €140 million with EBITDA margin of 12% to 15% and expected cash flow of €10 million to €12 million. This sales forecast roughly corresponds to the level achieved in the 2019 financial year, and would mean a sales increase of 12% compared to the level expected for 2020.

Voltabox and Other Divisions

Voltabox represents the electromobility operating segment of the Paragon group. Its business was suffering in 2019 and in early 2020 due to the Covid-19 pandemic and Paragon made a “€100 million balance sheet adjustment” in 2019 due to its deteriorated business prospects. At the time, the group said in its 2019 annual report that the subsidiary required “a powerful anchor shareholder with international presence” to take advantage of growth opportunities in the lithium-ion battery systems and that its business had become too different from the core business for the generation of sufficient synergies, according to its annual report.

The other segments of the group, electronics and mechanics, comprise Paragon Automotive, which was burning relatively large amounts of cash pre-Covid. The reported free cash flow burn for Paragon Automotive in 2018 and 2019 was €25.4 million and €33.9 million, respectively, as EBITDA in both periods was insufficient to cover the vast capital expenditure requirements.

Some investors said that the macro environment for automotive suppliers remains problematic and may represent a challenge for Paragon. Assuming the sale of Voltabox is successful, the group’s revenue will be driven by the automotive segment, which in turn is driven largely by sales to German OEMs, all of which are subject to a bleak outlook for the global automotive industry. Paragon’s sales are heavily concentrated on companies within the Volkswagen Group, as shown below, according to a presentation made by the company in November:

Porsche, Audi, Skoda, Bentley, Lamborghini, and MAN are all subsidiaries to the Volkswagen Group.

In a Volkswagen Group presentation dated Jan. 28, 2021, the group highlighted that the outlook for passenger volumes provided by IHS Market, which is used by many of the largest OEMs, was bleak for the North American and Western European markets. The data suggests that Western European and North American passenger volumes will not recover to pre-Covid levels over the next five years, while companies with higher exposure to China stand to benefit as the region is expected to grow strongly, as shown below:

One investor also mentioned a semiconductor bottleneck, which is causing considerable disturbances for manufacturers throughout the global vehicle production, as an additional problem for Paragon’s customers and the negative effect ensuing production stops would have. Volkswagen warned in December that the industry, including Volkswagen, is facing a shortage and that it had to adapt production. Other manufacturers face the same issue after the semiconductor industry shifted production toward consumer electronics due to the decline in automotive demand in early 2020.

Additionally, new travel restrictions at Germany’s border with the Czech Republic as a result of the Covid-19 pandemic could cause production stoppages, according to reports by Bloomberg and CNN.

Paragon’s net debt amounted to €122.1 million as of Sept. 30, which includes a CHF 35 million minibond due 2024 and paying a 4% coupon and a €50 million minibond due 2022 paying 4.5%. The company’s cash position was just €3.9 million at the end of September 2020, and it is unknown as of this date whether it had access to any undrawn committed facilities. We note that as of Dec. 31, 2019, the company had €22.5 million in unused available credit lines.

In 2019, an extraordinary bondholder meeting for the CHF bond resolved a formal breach of covenant. The covenant required that the ratio between equity and consolidated balance sheet total could not fall below 25%.

The company’s capital structure is below:

Paragon GmbH & Co KGaA


EBITDA Multiple

(EUR in Millions)





Loans 1


Total Bank Debt


€50M Unsecured Notes due 2022




CHF 35M Unsecured Notes due 2024 2




Total Unsecured Bond Debt




Total Leases


Total Debt


Less: Cash and Equivalents


Net Debt


Plus: Market Capitalization


Enterprise Value



Plus: Cash and Equivalents


Total Liquidity


LTM EBITDA negative. Market capitalization as of Feb. 16, 2021. It is unknown whether the group has access to any committed facilities which provide additional liquidity to cash.
1. As of Dec. 31, 2019, liabilities to banks were secured by property charges for loan liabilities in an amount of €23.2M and by charges over PPE of €5.8M.
2. Assumed unsecured. Converted at a rate of EUR 0.92842 / CHF.

Financial Performance

In the first three quarters of 2020, the group recorded an 11.6% year-over-year decline in revenue to €83.84 million, while EBITDA fell by 11.2% to €7.5 million. The group said this was mainly driven by six-week automotive plant closures in the first and second quarter of 2020, which led to a 21.8% decrease in revenue in the first half of the year. However, revenue in the third quarter was 9.4% higher than in the corresponding period in the previous year.

EBITDA margins in the first three quarters of the year, remained largely stable year over year at 9%.

Operating cash flow from continuing operations in the first three quarters amounted to €8.28 million, compared with a loss of €2.01 million in the same time period in 2019. Capex for continuing operations was 79.7% lower at €5.56 million in the same time period.

The group has been implementing measures to streamline its costs structure to further optimize production sites as well as introducing new systems. As part of these measures, the group plans to start manufacturing more components in production itself.

Paragon is a technology company providing sensors, acoustics, electromobility, cockpit and body kinematics for the automotive industry. The group provides products such as air quality sensors, road-noise cancelation, speaker systems and moveable exterior parts to the automotive industry.

The group generates about 80% of its revenue from German OEMs and its main customers are VW and Daimler, according to a recent presentation:

The company’s organizational structure is below:

--Aurelia Seidlhofer, Luca Rossi, Jacob Parker
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