Takko : Focus Emission

Credit opinion:Takko plans to issue € 510m of new senior secured notes (fixed and floating tranches) to refinance its outstanding € 525 senior secured notes.While we have long-term concerns for Takko because of the competitive nature in apparel retail and its underdeveloped online presence, we believe that new bond maturities could still benefit from Takko’s ongoing restructuring efforts amid earnings growth from new store openings of its Takko Express concept.Thanks to the meaningful upgrades of the notes by S&P and Moody’s to ‘B’ and ‘B2’, respectively, Takko will achieve a substantial reduction of its cash interest burden of up to 400bp or c.€ 23m. This alone would give Takko a high degree of financial flexibility in the next years.In our view bank debt will be extended by about 5 ½ years and therefore Takko would succeed in significantly extending its debt maturities, marking a major achievement for the management team. We also believe that refinancing conditions could ease in terms of its credit facilities.Our credit opinion is in line with the rating agencies: ‘B’/Stable.Recommendation:The peer instruments below and the recent CBR Fashion Group bond issue indicate that the Takko notes could be priced at a yield of around 5%, despite the covenant lite structure. Coming from c.9% (blended interest) is somehow shocking. Nevertheless, we recommend subscription at this level.As a reference we highlight that the CBR Fashion Group’s € 450m 5NC2 senior secured notes (rated ‘B2’ and ’B’) were priced at 5.125%. Initial price talk was 5.250%.>