Yeah I agree. If the business turns around then there is more value in the FPOs. VAHHA offers about 30% over 3 years, VAH in a solid recovery scenario would offer at least 100% gains IMO.
But IMO VAHHA is the safer option if you think the business will recover but want downside protection in case the recovery falls short. They have quite a hefty debt maturity profile between now and FY23 and as long as they are able to refinance that debt the Notes shouldn't be under too much risk of default.
If the business deteriorates much from here, then the FPOs are stuffed as I would imagine they would have to try for a cut-price equity raising before they default on their debt, which would dilute FPO holders out of existence.
If the business SERIOUSLY deteriorates from here, then they will have trouble refinancing their debt and raising enough equity, and realistically the airline probably collapses and both Notes and FPOs are stuffed. I don't think that's likely in the next couple of years as they are still generating operating profits and (some) FCF, have $1.7B cash on hand and only about $2B debt maturity between now and FY23.
So the best investment depends how one sees the business outlook: Big improvement: FPOs Moderate improvement: FPOs or Notes Flat: Notes Moderate deterioration: Notes Significant deterioration: Avoid or short
All IMO. Personally I think 'moderate improvement' is the most likely scenario, given the turnaround plan and the full ownership of Velocity, with 'flat' coming in second. So I have bought some Notes, but not enough that I'm overexposed in case the bottom two cases transpire.
VAH Price at posting:
15.0¢ Sentiment: None Disclosure: Not Held
