Tag Archives: HT1

Short updates: Rhoen, KPN, HT1 Funding

A few short updates which i think are worth mentioning in a post:

Rhoen Klinikum

One of my “special situations”. My original thesis behind this was that it is a solid company with a lot of interested suitors. Just today, the Fresenius CEO stated in WSJ Germany that they are still interested.

So this is still a solid, uncorrelated speculation that something could happen any time.

As one part of their capital raising effort, KPN issued two Hybrid bonds last week, 1.1 bn EUR at 6.125% and 400 mn GBP at 6.875%. According to Bloomberg, both bonds seem to have a “change of control” clause, meaning the bonds have to be paid back if someone becomes majority shareholder of KPN. This is quite uncommon for hybrids and looks a little bit like a “poison pill” against Carlos Slim.

Additionally, I found that rating review from Fitch (via Reuters) quite interesting.

KPN is facing some headwinds in the Netherlands. A fourth entrant plans to set up a 4G network (Tele2) and there seems to be a potential 2 bn liability from a subsidiary called Reggefiber, where KPN currently seems to have a 41% share but will soon have the majority.

Commerzbank HT1 Bond

Commerzbank just released news that they plan to increase share capital by 2.5 bn EUR and paying back their silent participations. This is not so nice for shareholders, but very good for HT1 holders as more equity is now “below” the subordinated capital, reducing downside risk.

So not surprisingly, the price of the HT1 bonds increased significantly.

Commerzbank HT1 tender offer – results

Commerzbank just released the results for their tender offer.

Interestingly, all tendered securities have been accepted, so the described arbitrage strategy has worked out nicely for anyone able to exploit it.

What I found extremely interesting is the fact, that less than 15% of the UT2 were tendered but almost 60% of the HT1 bonds (584 mn out of 1 bn).

One of the reasons could be that the HT1 bond was owned by hedge funds anyway who had hedged the bonds at least partly with shares even before the tender.

For a small HT1 investor with a medium term time horizon, the outcome is actually positive. In my opnion, the reduced amount of outstanding bonds will increase the chance that Commerzbank will actually call the bonds in 2017, when they switch into floating rate and loose all benefits with regard to capital ratios.

Based on 68%, the potential yield if they are called at par in 2017 would be still 17.2% p.a. which I find is extremely attractive.

HT1 Funding – Hedgefund edition

Last week I quickly outlined the tender offer for the HT1 funding.

In short, Commerzbank is offering 71% for HT1, however in shares based on the VWAP of the shares in a certain time period.

Today, almost 2 mn EUR of nominal HT1 have been traded at 68.85% on average, well below the 71% offer price.

So a (small) hedge fund could make the following arbitrage:

– buy the HT1 at 68.85%
– sell the respective shares at VWAP over the relevant period (which is no problem to achieve as institutional investor)

Share lending for Commerzbank currently costs 4-5% p.a. so for the roughly 2 weeks the payoff would be (71-68.85)-transaction cost. If we assume a transaction cost of overall 0.5% we still would have an “arbitrage” gain of 2.5% for 2 weeks. This could be in theory leveraged a couple of times to make it more interesting.

The only risk factor is that it is not clear how much Commerzbank will effectively accept or how much of the total packageis actually offered to Commerzbank.

In comparison, the UT2 bond which has a higher priority, is trading at 81,4%, a lot closer to the offer price of 82.5%. Based on my “gut feeling”, the

So in theory one could calculate the implict acceptance quotas for the different tranches based on those quotes relative to their offer price.

For any normal investor this sounds like peanuts, but for hedgefunds this is really an interesting opportunity to make non-market related returns within a very short time horizon.

For the portfolio, I would have joined the “party” if it wouldn’t be too much work to execute the transaction.

Commerzbank HT1 Tender offer

Good times for my “special Situations” investments.

After Draeger came out with an 210 EUR offer last week, Commerzbank today announced that they will make a tender offer (among others) for the HT1 Bond at 71%..

The exchange offer invitation by the Offeror includes the following hybrid capital instruments, subordinated debt securities and other capital instruments:

Instrument Aggregate Principal ISIN Minimum Theoretical Order of
  Amount outstand-   Nominal Purchase Priority**
  ing   Amount Price  
Commerzbank Capital Funding Trust I EUR 189,550,000 DE000A0GPYR7 50000 31500 1
Commerzbank Capital Funding Trust II GBP 115,600,000 XS0248611047 £ 50,000 £ 30,500 1
UT2 Funding p.l.c. EUR 750,000,000 DE000A0GVS76 1000 825 2
HT1 Funding GmbH EUR 1,000,000,000 DE000A0KAAA7 1000 710 3
Eurohypo Capital Funding Trust I EUR 306,425,000 XS0169058012 1000 690 4
Lower-Tier-2-Anleihe (bearer bond) EUR 502,150,000 DE000CB07899 50000 € 41,000*** 5
Lower-Tier-2-Anleihe (bearer bond) EUR 272,850,000 DE000CB8AUX7 50000 € 42,500*** 5

The only caveat is the point that the inevstors will not get cash but Commerzbank shares.

The Offeror plans to contribute the securities it acquires as a contribution in kind to Commerzbank in exchange for new shares issued from the authorised capital (“genehmigtes Kapital”) of Commerzbank. There will not be a placement of the new shares with investors, as qualified holders of the selected securities will receive the shares directly in exchange for the securities tendered.

To make things more interesting, the amount of shares (and the implicit exchange price for the shares) will be determined in the following way:

The price of these shares will be determined based on the average of the daily volume weighted average price in XETRA during the period starting on February 24 and ending on March 2, 2012.

Th eoffer is limited to the number of new shares created (511 mn shares at 2 EUR would mean around 1 bn EUR), the securites affected have a total volume of 3.1 billion. If more people tender, the acceptance will be on a proportional basis:

In the event that the total volume of securities for which tenders have been submitted to the Offeror exceeds the authorised capital of 511,342,904 shares, the Offeror will accept the tenders on a pro rata basis as set forth in the Exchange Offer Memorandum dated February 23, 2012.

A technical side remark: Commerzbank has announced that the local GAAP result will be a hefty loss of 3.5 bn EUR, however they will use reserves to prevent any writedown on profit participating securites, including HT1.

Summary: The tender offer will boost the price significantly. I am however not sure if I want to sell at that price.

Commerzbank- Kapitalerhöhung – Auswirkungen HT1 Anleihe

Die Ankündigung der doch recht komplexen Mega Kapitalerhöhung hat den CoBa “Tieren” doch noch einen netten Kurszuwachs beschert.

Auch die HT1 Anleihe konnte in den letzten Tagen nochmal gut zulegen auf zuletzt fast 87%.

Ohne jetzt auf die ganzen Details einzugehen ist die Kapitalerhöhung, sofern sie denn erfolgreich platziert wird, für den HT1 Anleger positiv.

Bislang war die komplette SOFFIN Einlage i.H. von 16 Mrd. EUR ja “pari passu” mit der HT1 Anleihe, d.h. jeder verdiente EUR musste im Prnzip mit diesen Anleihen geteilt werden. Mit der Umwandlung eines Großteil der Soffin Einlage in Aktien werden die HT1 Anleger strukturell besser gestellt, da die Ansprüche der Aktionäre auf den Gewinn nachrangig zu den Anleihen sind. Etwas überraschend ist der starke Anstieg für uns dennoch, weil die Zinszahlung ja auch ohne Gewinne garantiert war und auch die Heraufschreibung an sich vorrangig zu den Zinszahlungen auf stille Einlagen war.

Wir glauben, dass der Markt nun einfach eine deutlich höherer Wahrscheinlichkeit für ein positives HGB Ergebnis für das GJ 2011 annimmt und sich deshalb auch die Wahrscheinlichkeiten für Heraufschreibungen und Zinszahlungen bei den Nachrängen erhöhen.

Die jetzige Struktur und die Ankündigung der Coba, in 2012 eine Dividende zahlen zu wollen spricht dafür, dass die HT1 Anleger auch eine Heraufschreibung des Nennwerts auf 100% sehen werden.

Spätestens dann sollte die Anleihe dann auch Richtung Nominalwert gehen. Auf der jetzigen Basis wären das nochmal fast 15% Kurspotential, die wir gerne realisieren würden.

HT1 Funding – Update

Die Commmerzbank hatte vor ein paar Tagen Ihre 2010er Zahlen bekannt gegeben.

Während man um die Aktie weiter einen weiten Bogen machen sollte (dazu vielleicht mal ein extra Post), gab es allerdings gute Nachrichten für die HT1 Halter: Es wird erstmal keine weiteren Nennwertreduzierungen geben. Das ist implizit in der Ankündigung enthalten, schon 2011 Teile der SOFFIN Einlagen zurückzuzahlen. Diese Einlagen können nur zu 100% zurückgezahlt werden und sind “pari passu” zur HT1. D.h. eine Abschreibung auf die SOFFIN Einlage wird nicht erfolgen, ansonsten könnte die Commerzbank rein technisch ihre Ankündigung nicht wahr machen.

Im Gegensatz zur SOFFIN bekommt der HT1 Halter aber die Zinsen vom Garanten, der Allianz SE bezahlt. Dementsprechend zog der Kurs der HT1 auch auf nunmehr freundliche 78,5% an. Im Vergleich z.B. zum 5.012% Commerbank Hybrid, der keine Zinsen zahlt und auch bei 78% notiert, ist die HT1 immer noch deutlich unterbewertet.

Target Portfolio as of January 1st 2011

Beschreibung des Ziel-Portfolios in deutscher Sprache

Target Investments „Core Value“

This is an overview with short comments for the current portfolio. We will add detailed analysis for the positions in the coming weeks.

AS Creation (ISIN DE0005079909) 7%
European market leader producing and whole selling wallpapers. Family owned, cheap valuation with continuous growth. Currently issues with the German anti trust authority which lead to a drop of ~15% in the share price.

Buzzi Unichem Pref. (ISIN IT0001369427) 6%
Italien based cement producer. Family owned, cheap on the basis of historical valuation. Exposure to problematic Italian and US markets, however strong presence in Germany through Dyckerhoff subsidiary. Low debt and goodwill compared to other cement companies.

Vetropack (ISIN CH0006227612) 5%
Swiss based specialist for glass packaging. Strong profit growth in the last couple of years but still relatively cheap. Currently issues due to strong Swiss Franc.

Bijou Brigitte (ISIN DE0005229540) 5%
Costume jewelery and accesoires retail chain, former growth „star“ company. Peak of sales and profit in 2008, since then shrinking sales and profits. However, company produces lots of cash and is relatively cheap. 100% equity financed, family ownership, attractive dividend yield and share repurchases make the stock attractive.

KSB Vz. (ISIN DE0006292030) 5%
Global market leader for pump systems. Typical German „Mittelstand“, meaning low debt, no goodwill and family owned. Produces among others pumps for power plants. Listed subsidiary in India.

Frosta (ISIN DE000606900) 5%
Family owned frozen food producer, who survived a crisis in the years 2000-2003. Famous in Germany for frozen meals without artificial condiments. Strong market position and brand name in Germany and Poland. Relatively cheap valuation.

EVN (ISIN AT0000741053) 5%
Austrian utility company with subsidiaries in the Balkans. Majority owned by the Austrian Government, another big chunk of the shares are held by German utility EnBW. EVN itself owns 11.5% of Verbund, another Austrian utility. Cheap valuation and constant dividend payments

Ensco (ISIN US29358Q1094)) 5%
US Offshore oil drilling oil service company. Almost no debt, currently depressed share price because of Deepwater Horizon accident. Also large position of David Einhorn’s Greenlight.

WestagGetalit Vz. (ISIN DE0007775231) 3%
Solid German building material company with cheap valuation, high dividend yield and consistent earnings.

Hornbach Baumarkt (ISIN DE0006084403) 3%

German Home improvement store chain with cheap valuation combined with reasonable profit growth.

OMV (ISIN AT0000743059) 3%
Austrian Gas and Oil company. Strong presence in Southern-Eastern Europe, especially Oil drilling in Romania.

Fortum (ISIN FI0009007132) 3%
Utility from Finland with high percentage of renewable and nuclear power generation. Within the European peer group extremely low Carbon emissions. Currently build up of capacity (natural gas) in Russia. Not really cheap but attractive as share price has suffered due to general problems in the utility sector.

Apogee Enterprises (ISIN US0375981091) 3%
Apogee designs and develops architectural glass and other building glass installations. Currently in the low of the business cycle as glass facades are completed at the end of an construction product, cpacity utilization at the moment only around ~50%. Apogee now concentrates on “value added” glass, especially insulation in order to save energy. Similar story as Sto Vz.

Tonnellerie Francois Freres (ISIN FR0000071904)) 3%
Global market leader for manufacturing oak barrels (Barrique). Vertically integrated business from the production of wood to recycling barrels into wooden chips. Cheap valuation, very stable margins.

Medtronic (ISIN US5850551061) 3%
Market leader for many types of medical products. Fundamentally not really cheap but cheap compared to historical valuations. High margins, benefits from demographic trend.

Einhell VZ(ISIN DE0005654933) 2%
Company produces low cost handyman and craftsmen tools. Distribution through all major discount chains and home improvement stores. Constant earnings and growth for a cheap price.

Tsakos Energy Navigation (ISIN BMG9108L1081) 2%
Family owned tanker fleet operator from Greece. Very cheap valuation, however difficult market and surprising capital increases make the stock risky.

WMF Vz. (ISIN DE0007803033) 2%
Traditional German manufacturer of silverware and other household wares. Through clever acquisitions, WMF succeeded to enter the market for professional coffee machines. WMF also operates its own retail stores.

Benetton SpA (ISIN IT0003106777) 2%
Former star performer with provocative marketing campaigns. After 10 years of share price declines, stock is fundamentally very cheap incl. a good dividend yield combined with low debt and low goodwill. Company has significant presence in BRIC markets, which could offset further decline in its home market Italy.

Ishares -Stoxx 600 Utilities (ISIN DE0006289457) 3%

Utilities were on average one of the most underperforming sectors. Cheap valuations, stron cash flows and high dividend yields however make the sector attractive. High goodwill and significant debt create risks as well as in some cases questionable investments into emerging markets projects.

=Sum Core Value 78%

The following titles represent the category “Opportunity”

Aire KGaa (ISIN DE0006344211) 3%
Former “AIG Real Estate”. A traded closed real estate investment fund. No direct links or exposures to AIG. Real estate portfolio consists of international projects around the globe. A lot of the investments are highly leveraged but have been written down substantially in some cases even completely. More than 50% of the remaining NAV is concentrated in one object in Bratislava where refinancing is due in 2011.

Degi International (ISIN DE0008007998) 3%
One of several open real estate investment trusts which had to be closed down due to overwhelming redemption request. Portfolio is relatively solid and fund is priced ~50% of NAV. Small chance for reopening until November 2011.

CS Euroreal (ISIN DE0009805002) 2%
temporarily closed open ended real estate fund with very high likelihood to reopen in 2011

IVG Convertible 2014/2017 (DE000A0LNA87) 3%
Non-rated Convertible bond issued by a large German real estate company, maturity 2107. No option value as exercise price is 10 times current share price. Bond holder have put right at par in 2014, yield at current prices ~11% p.a. which is significantly more than for corporate bonds with the same risk profile. 100k EUR min . notional.


HT1 Funding (ISIN DE000A0KAAA7 3%)
Officially default rated (“C”) Hybrid bond from Commerzbank who has already suffered a principal write down of about 15%. Specialty: Bond still pays coupon due to guarantee fram Allianz SE. Further risk for writedowns limited. If Commerzbank starts to pay dividends in 2012 as expected by equity analysts, bond will have to be written up to 10% before that.

Drägerwerk Participation Rights (ISIN DE0005550719) 3%
Classical capital structure “arbitrage”. Participation rights receive 10 times the dividends of the listed pref shares of Draeger but only costs twice as much. However some issues about dilution provisions exist. In 2011, significant cash out (dividend + compensation for capital increase of 2010) is expected.

Sum “Opportunity” = 15%

Sum Total = 93%