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Brightwater Retail Holdings · BWR

DEMO DATAUNDERWRITING ASSUMPTIONHOLD
Five-minute case summary

Brightwater Retail Holdings

DEMO DATAUNDERWRITING ASSUMPTION
HOLD
1
The opportunity
Demo purchase of $100M face of First-Lien Term Loan at 78.0 (cash investment $78.4M): current yield 13.2%, yield to maturity 25.7%.
2
The question
Does a 25.7% yield on a rank-2 secured claim compensate for 100% probability-weighted default risk and 72% severe-case loss?
3
The thesis
Unsecured notes mature in May 2027 and cannot be refinanced at current leverage, forcing a liability-management exercise or restructuring. The first-lien term loan at 78 is covered by ~$1.0B of inventory and owned real estate, so we get paid to wait and control the outcome.
4
The risk (what causes loss)
  • Thin interest coverage: EBITDA / interest 1.31x at FY2025A (EBITDA could fall 24% before coverage hits 1.0x).
  • Refinancing: $480M maturity in FY2027E; only $151M projected liquidity; $329M refinancing requirement.
  • Severe-case valuation recovery of 28% is below the 78.0 purchase price: a 72% loss given default.
  • Downside-case recovery of 55% falls short of the purchase price.
5
The protection
  • Secured, rank 2: $180M ranks ahead.
  • Base-case refinancing tests pass for all 4 maturing tranche(s); 0 are repaid from cash.
  • Par-ish recovery via asset coverage
  • Control of restructuring as lead first-lien lender
6
The base case
Base case (55%): revenue -1.0% in FY2026E, EBITDA margin 6.5%; payment default in FY2027E; IRR 13.1%, MOIC 1.39x vs 12% hurdle.
7
The downside
Downside (30%): EBITDA $49M at the trough, peak net leverage 28.6x, covenants breach in FY2026E; default in FY2027E; IRR 0.7%. Severe (15%): default in FY2027E, IRR -13.9%.
8
The recovery
If the company defaults, recovery value is $406M (liquidation) in the severe case → 28% recovery (72% LGD) on the target tranche; downside 55%.
9
The decision
HOLD. HOLD (do not size yet): Expected-cash-flow IRR (probability-weighted) clears hurdle (6.4% vs ≥ 12.0%); Downside recovery meets minimum (valuation waterfall) (54.8% vs ≥ 60.0%); Net leverage within maximum (7.7x vs ≤ 6.0x).

Generated from the structured model (no free-text generation beyond the analyst’s thesis and risk lists). Hypothetical terms are underwriting assumptions; nothing here is a real transaction.