Hedge funds to cash in on Europcar Mobility Group

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Hedge funds to cash in on Europcar Mobility Group

Hedge funds that bought Europcar Mobility Group in a complex debt restructuring earlier this year are set to cash in more than double the amount they invested after Volkswagen AG agreed to buy the company.

A group of five funds led by Anchorage Capital Group bought most of the 1.1 billion euro of the French car rental firm's unsecured debt at as low as 40% of face value after the pandemic brought international travel to a halt in 2020. Their investment, after swap in equity (on account of acquisition by the German carmaker) on February 18th, doubled as the funds' 60% stake was valued at more than 1.5 billion euros by the carmaker last week.

'For the funds that took part in the restructuring, it is a great business, said Mateo Salcedo, credit analyst at Spread Research-Qivalio Group. 'They got a high valuation due to the good moment the industry is going through, and the acquisition removes the uncertainty of what's going to happen with the travel industry in 2022.

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Volkswagen teamed up with the hedge fund Attestor - another major shareholder who became a shareholder as a result of restructuring - and Dutch mobility provider Pon Holdings to offer 2.5 billion euros as the French business slashed net losses in the first half of the year after it cut costs and gained travel options in the U.S. and Europe. The car rental firm also benefitted from weaker competition and delays in delivery of new vehicles, according to its latest earnings report.

King Street Capital Management, Diameter Capital Partners & Marathon Asset Management were among the principal investors that bought debt at a discount last year. The exact profit made by each fund depends on the timing of their investment and their contribution to capital raise. Attestor will store the shares it holds and reinvest the proceeds together with Volkswagen and Pon.

Representatives for Anchorage, Attestor, Marathon and King Street declined to comment. Spokespeople for Europcar and Diameter did not answer to calls and emails seeking comment.

In November, Europcar agreed to a major restructuring by strengthening its current business arm (Europcar). The deal included the conversion of 1.1 billion euros of debt into equity, and an additional equity injection of 250 million euros, which was mostly provided by creditors.

Volkswagen's management made it clear that its aspirations with Europcar would not end at being a car rental business, wrote Tom Narayan, an equity analyst at RBC Capital Markets, in a July 29 report.