Wasps issue trading statement as Covid crisis impacts 6.5% 2022 retail bond

Wasps Finance PLC, the issuer of the Wasps 6.5% May 2022  retail bond issued a trading statement on 2^nd July, including the following:

“The Group had been trading in line with expectations during the first nine months of the financial year prior to the lockdown imposed in response to the COVID-19 pandemic.  The Government’s public health restrictions, which have meant the closure of the Ricoh Arena to all events since 21 March, have had a significant impact on the Group’s business and operations.

The Issuer today gives holders of the Bonds notice that, as a result of the significant impact on the Group from COVID-19, it now anticipates that certain financial covenants under the Bonds relating to the financial year ended 30 June 2020 will not be satisfied when Wasps Holdings Limited’s audited annual consolidated financial statements for the period are published.”

The bonds were trading at around 51.5% prior to this announcement, so it might have been reasonable to assume that this kind of information was already in the price; however, the bonds fell further and at the close on Friday 10th July were being offered on the LSE at 39.5%

Wasps are in a precarious position financially, and it is difficult to see how this bond will be redeemed in two years’ time.

However, there is further information to be found in the bond issue prospectus that may point to the future: https://www.wasps.co.uk/media/3073/wasps_prospectus2.pdf

The front cover includes the word ‘Secured’.

Details of the security includes a legal mortgage over the Stadium, the value of the ‘P-Shares’ (shares of Premiership rugby), and a fixed charge over the ‘Interest service reserve bank account. This security would be used (enforceable by the trustee) in the event of default to make the bond holders whole.

So how much is this worth? The company is due to publish its full year results to June 2020 later in the year.

It’s most recent results is the 6 months to 31/12/2019: https://www.wasps.co.uk/media/7048/wasps-holdings-ltd-31-12-2019.pdf

There is a mitigation comment that may suggest the company have insurance to cover ‘Closure of the Arena due to unforeseen circumstances’.

The most recent valuation of the stadium (March 2019) is at £51m, so the stadium alone easily covers the £35m bonds outstanding, and at a bond price of 39.5% it covers them more than 3 times.

In an ideal world most investors will not be hoping to end up with a piece of the stadium, but when valuing the bonds this needs to be seriously considered.

One option could be re-financing via the issue of another bond; however at current yields it appears more likely that either the bonds’ maturity will be extended, with suitable compensation to bond holders, or the stadium be sold to repay the bonds.