New Coverage: Cabonline SEK 1.8B Bond Falls to 70 After Negative Q4 Adj. EBITDA of SEK 11M, Net Leverage Hits 11.7x

Relevant Documents:
FY’20 Results Press Release
FY’20 Financial Report
Q3 Investor Presentation
Waiver and Covenants Amendments Press Release
Consent Solicitation/Updated Bond Prospectus
Press Release CS Result

Nordic taxi company Cabonline’s 1.8 billion Swedish kronor (€178 million) bond is quoted at about 70 after the group reported a revenue fall of 44% year over year to SEK 997 million for the fourth quarter of 2020 while adjusted EBITDA for the period stood at negative SEK 11 million. However, the bond which matures in 2022 is very illiquid and there haven’t been any trades recently.

Cabonline has been severely hit by a decrease in demand in the business and consumer segments with a travel volume decline of 70% year over year in the fourth quarter. The group saw an operating loss in the fourth quarter of SEK 75 million and a negative cash flow of SEK 52 million for the period.

Investors, however, said that the group is less affected by the Covid-19 pandemic compared to other companies in the taxi industry, because the group generates more than half of its revenue from public service traffic such as transport of elderly people, school transports and wheelchair-accessible taxis. The decrease in the “business to public” segment was only 20% year over year in the fourth quarter, the company said. Three-quarters of Cabonline’s total fees are fixed, but the group offered a deferral of payments of parts of the fixed fee for about three months to clients.

The group’s current financial position looks sustainable for about 12 months assuming that travel volumes do not recover in the coming months, sources told Reorg. Cash and cash equivalents as of Dec. 31, 2020, amounted to SEK 298 million, with the company’s SEK 125 million RCF fully utilized as a precautionary measure due to the Covid-19 pandemic. Net debt was SEK 1.772 billion at the end of December, which includes the SEK 1.8 billion bond due 2022 and paying a coupon of three-month STIBOR+8.5% after an amendment in July. The group has pledged its shares in all material subsidiaries as collateral against the bond and the RCF.

While the group has received some tax and fee credits of about SEK 70 million, SEK 65 million of this is not due until 2022.

However, Nordic Credit Rating agency highlighted in December that there is risk of a covenant breach by the end of 2021 if EBITDA has not normalized by the middle of the year. The group’s net leverage ratio was 11.7x at the end of December, compared with 5.5x as of the end of 2019, the agency said. Some investors also said that the recent financial underperformance and a slow recovery could make it more difficult to refinance the bond ahead of its maturity in 2022.

In December, Nordic Credit Rating also withdrew its CCC long-term and N-4 short-term issuer credit ratings for Cabonline at the issuer’s request, citing an uncertain operating environment.

Recent Debt Amendments and Waivers

The company secured a net leverage covenant waiver until Sept. 30, 2021, in July last year and amended the ratio for the test dates thereafter, as follows:
 

• 7x as of Dec. 31, 2021;
• 6.75x as of March 31, 2022;
• 6.5x as of June 30, 2022;
• 6.25x as of Sept. 30, 2022; and
• 6x as of Dec. 31 2022.

Cabonline also agreed a liquidity maintenance covenant test with its noteholders. The average liquidity position of the group (including cash and available commitments under the super senior revolving credit facilities agreement) during the month cannot be less than SEK 125 million. This will be tested at the end of each month until September 2021. The group had comfortable headroom under the covenant at the end of December.

As part of the agreement, Cabonline’s main shareholder HIG Capital provided a SEK 140 million facility, which ranks pari passu with the notes and will be made available by way of loans. These loans will share in the transaction security granted for the notes. The commitment will be available to the company until the final liquidity maintenance covenant test date in September 2021, while the maturity of the loans will be the same as the existing 2022 notes.

The loans’ margin, including any fees or similar will not exceed 5% a year and no commitment fee or similar is payable.

Bondholders received a 1% interest uplift on their bond, which is payable in PIK interest until September 2021 as well as a consent fee of 0.5% of the nominal amount of the notes for the amendments.

As part of the consent solicitation, Cabonline also received bondholder consent for certain amendments to facilitate the restructuring of the business in Finland. The options the company is considering include divesting the operations in its Finnish subsidiaries and terminating operations in Finland via liquidation. The Finland business segment recorded a negative adjusted EBITDA of SEK 15 million in the fourth quarter and an adjusted EBITDA of negative SEK 19 million a year earlier.

Pareto Securities acted as the company’s financial advisor in the context of covenant amendments.

The company’s capital structure is below:
 

Recent Financial Performance and Outlook

Revenue for the full financial year 2020 was SEK 4.171 billion, a year-over-year decrease of 36%. Adjusted EBITDA across the year was SEK 37 million, while operating loss was SEK 124 million.

The group said revenue in January and February this year is about 9% higher than the year prior. The company said in order to cope with the temporary decrease in demand for its services due to the ongoing pandemic, especially in the business and consumer segments, its main focus area for the remainder of the year is efficiency improvement throughout the group. The group also said its operational base for full-year 2020 is expected to be approximately SEK 200 million lower than in 2019.

As a result of decreased travel volume, Cabonline has taken measures to increase demand. These initiatives include services helping companies deliver internal mail, home delivery of groceries and delivery of food from restaurants. Management also said it hopes to be able to generate more business by certain regions offering transportation to and from vaccination centers as well as transport to and from Covid-19 testing facilities.

The group has set an annual sales target of 5% growth in the medium term, with the increase achieved through a combination of organic growth and additional acquisitions. The group is also targeting an adjusted EBITDA margin of more than 4% in the medium term, according to its financial year 2020 report.

Cabonline is a software company, which connects about 2,500 transport companies with about 4,500 cars with customers in about 60 local markets across Sweden, Norway, Finland and Denmark, according to the most recent financial report. Cabonline operates under various brands and does typically not own any cars or employ any drivers. It collects fixed and variable fees from its clients. The group also owns some of the public procurement contracts and agreements negotiated with business customers. At the moment, the group operates about 120 publicly procured contracts, according to its most recent financial report. The company has grown through acquiring and integrating taxi companies.

An overview of the company’s business model is below:
 

A snapshot of the company’s revenue by customer segment and geography is below:
 

-- Thomas Baker, Aurelia Seidlhofer