Grupo Prisa SA: An Update On Refinancing Debt

Includes: PRIS, PRIS.B
by: Michael Ross Seeley

A very astute comment was made on a previously published article Grupo Prisa – An Introduction to a Special Situation wherein it was noted that the business fundamentals would be largely irrelevant absent the successful refinancing of Grupo Prisa SA’s (NYSE:PRIS) (“PRISA” or “the Company”) debt. A request was made for any recent information that would suggest Grupo Prisa SA will be able to secure debt financing in the midst of the current sovereign debt crisis in the EU and Spain. This article is meant to address that concern, in large part.

The current share price is obviously not the 'correct' price for Grupo Prisa shares based on the business fundamentals. So long as the Company can refinance its bank debt, the shares are likely 'worth' $10 or more; whereas were PRISA to fail to secure refinancing, the shares may be virtually worthless. The market is therefore taking a 'middle-of-the-road' approach to the Company's stock by essentially splitting the difference until a resolution to the debt-financing is successfully reached.

Bankruptcy would be a legitimate and very real risk were the Company to fail to secure refinancing on its key loans (May 19, 2006 Syndicated Debt; December 20, 2007 Bridge Loan; December 20, 2007 Subordinated Debt; and certain Bilateral Loans).

As contained in the October 24, 2011 Form 6K filed with the SEC, the Company stated a refinancing proposal was being submitted to the banks. At that time, we obtained the necessary comfort to increase our holdings due to the announcement of the partial exercise of warrants by the majority shareholders. We felt it was unlikely that Timon SA and Mssrs. Martin Franklin and Nicholas Berggruen would exercise 75 million warrants at €2.00 per (over double the current market price per underlying share) unless it was a necessary part of the refinancing proposal the Company submitted to the banks at that time. [Note, the Martin Franklin referenced is the Jarden Corporation (NYSE:JAH) turnaround artist, during whose tenure as CEO for over a decade, JAH shares have appreciated more than 10-fold].

We were further encouraged by the announcement of Carlos Slim's investment in PRISA thru Carso SA de CV. Much like Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) preferred investments in Goldman Sachs Group Inc. (NYSE:GS) and General Electric Company (NYSE:GE) during the 2008-2009 credit crisis, and the even more recent investment in Bank of America Corporation (NYSE:BAC); we viewed the Telmex Chairman's investment in Grupo Prisa to be a vote of confidence in Promotora de Informaciones SA. After all, when the richest man in the world, two years running, newly acquires in excess of 3% of a company’s stock, we tend to view this as a partial validation of our existing investment thesis.

Subsequently, the Company’s regulatory filing with the SEC on December 19, 2011 provided further confirmation that PRISA would ultimately succeed in refinancing its debt, despite the EU credit crisis. In this most recent Form 6-K, the Company notes it is finalizing the refinancing of the above notes, has reached agreement with most of its creditors, and expects to reach an agreement with all of its creditors by the end of the year. Although not certain until the ink dries on the executed financing agreements, we are greatly reassured at this time in the ability of Grupo Prisa to continue operating as a going concern under current ownership and management.

Disclosure: I am long PRISB.