One important aspect of the FY result was TRS's preliminary disclosures on leases. They mentioned that the adjustments for 2018 would have been a $250m liability and an addback to EBITDA of $90-$93m. To put this in context, this would mean that their new leverage (debt/EBITDA) calculation would be about 1.7x based on the 2018 results. This compares with 0x on a non lease adjusted basis. Prior to these disclosures, I had some concern that the debt adjustment could be $400m+ (I won't go into detail here as to why but can elaborate if needed), so this announcement is a big positive for me. Although I don't think it will mean much for the way TRS runs its business, it does provide clarity to potential private equity bidders that they can releverage this business post acquisition to levels that would enable it to generate IRR's >30%. Accordingly, with today's price fall, I think the reemergence of P/E interest is increasingly likely. I know the discussion on leases may sound unimportant, but having been in credit/fixed income for 25+ years, and had in many discussions over the past year about these lease adjustments, this is an important issue that has now been clarified.
TRS Price at posting:
$5.54 Sentiment: Hold Disclosure: Held
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