Atlas Logistics · ATLS
DEMO DATAUNDERWRITING ASSUMPTIONHOLDAtlas Logistics — First-Lien Term Loan
Proposed investment
Returns
| Base IRR (p=55%) | 11.3% | FAIL |
| Downside IRR (p=30%) | 8.3% | PASS |
| Severe downside IRR (p=15%) | 1.7% | |
| Probability-weighted IRR (of expected cash flows) | 7.8% | FAIL |
| MOIC base / downside / severe | 1.11x / 1.25x / 1.05x | |
| Required IRR (hurdle) | 12% | |
Credit
| Net leverage (FY2025A) | 4.4x | max 6.0x |
| Interest coverage (EBITDA / interest) | 2.86x | |
| Liquidity | $340M | |
| Covenant headroom (base, minimum) | 22% | min 15% |
| Credit score | 56 / 100 | Elevated |
| Next maturity | 2027 | |
Downside
| Recovery (downside / severe) | 100% / 78% |
| Loss given default (severe) | 22% |
| Default period (downside / severe) | FY2027E / FY2027E |
| Probability of default (weighted) | 45% |
| Expected loss | 3.3% |
| Recovery needed for MOIC 1.0x | 78% of face |
Key risks (largest first)
- Refinancing: $600M maturity in FY2027E; only $375M projected liquidity; $225M refinancing requirement.
- Severe case produces a payment default in FY2027E.
- Severe-case valuation recovery of 78% is below the 96.5 purchase price: a 22% loss given default.
- Covenants breach in the Downside case (FY2026E); none in the Base case.
- Elevated leverage: net debt / EBITDA 4.4x.
Key protections (strongest first)
- First-priority secured position on substantially all assets; 0% of recovery value is senior to us and 39% through our tranche.
- Coverage of 2.86x EBITDA / interest; EBITDA can fall 65% before coverage reaches 1.0x.
- Liquidity of $340M (23% of total debt).
- Base-case refinancing tests pass for all 3 maturing tranche(s); 1 are repaid from cash.
- Short-dated pull-to-par
Catalysts
- Refinancing launch in H2-2026
- Freight index turn
Diligence — 3 unresolved high-priority item(s)
Tracker →- Debt documentation review — In ProgressPriming / drop-down protections and baskets?
- Covenant package and definitions — In ProgressCovenant EBITDA definition and headroom?
- Maturity profile and refinancing plan — In ProgressIs the refinancing plan credible at current leverage?
Investment thesis
Term loan at 96.5 matures June 2027 and should refinance in the base case; the question is downside. Short-dated loan with asset coverage of 1.3x is a short-duration pull-to-par candidate if the refinancing window stays open.
The question: Does a 11.1% yield on a rank-1 secured claim compensate for 45% probability-weighted default risk and 22% severe-case loss?
Recommendation rationale — evidence from the model
HOLDHOLD (do not size yet): Base-case IRR clears hurdle (11.3% vs ≥ 12.0%); Expected-cash-flow IRR (probability-weighted) clears hurdle (7.8% vs ≥ 12.0%); Principal protected in severe case (recovery ≥ price) (78 vs 96.5 vs recovery ≥ price).
| Test | Actual | Required | Weight | |
|---|---|---|---|---|
| ✗ | Base-case IRR clears hurdle | 11.3% | ≥ 12.0% | core |
| ✗ | Expected-cash-flow IRR (probability-weighted) clears hurdle | 7.8% | ≥ 12.0% | core |
| ✓ | Downside IRR stays above floor | 8.3% | ≥ 0.0% | core |
| ✓ | Downside recovery meets minimum (valuation waterfall) | 100.0% | ≥ 60.0% | core |
| ✓ | Base-case refinancing succeeds | PASS | PASS | core |
| ✓ | Entry yield meets minimum | 11.1% | ≥ 9.0% | secondary |
| ✓ | Net leverage within maximum | 4.4x | ≤ 6.0x | secondary |
| ✓ | Covenant headroom (base case, minimum) | 22.0% | ≥ 15.0% | secondary |
| ✗ | Principal protected in severe case (recovery ≥ price) | 78 vs 96.5 | recovery ≥ price | secondary |
| ✗ | No unresolved high-priority diligence | 3 open | 0 open | secondary |
Rule: PROCEED if all five core tests pass and ≤ 2 secondary tests fail; PASS if the base case and the downside both fail, or ≥ 3 core tests fail; otherwise HOLD. Thresholds (hurdle 12%, min downside IRR 0%, min yield 9.0%, max leverage 6.0x, min recovery 60%, min covenant headroom 15%) are configurable per case. The Excel Investment Summary tab implements the same rule by formula.
What would change my mind?
- EBITDA declines more than 65% from FY2025A (coverage < 1.0x) — or more than 20% (first covenant breaks).
- The entry price is above 95.9: the base case no longer earns the 12% hurdle (assumed price 96.5).
- Severe-case recovery returns the purchase price only if the distressed valuation multiple is at least 34.0x EBITDA (the severe case assumes 5.0x); the question is how much cushion we want.
- Collateral / enterprise value falls more than 59% from the base-case valuation: the tranche starts to take losses.
- Market access weakens: base-case pro-forma coverage at refinancing is 3.28x vs the 1.20x test, at an assumed 8.5% refinancing rate — a higher spread or lower EBITDA flips the test.