SIRCOM 11 07/15/27

Publicly traded companies mentioned herein: N/A

Highlights

The presenter is long Sirius Computer Solutions’ 11% notes. He likes the notes for three reasons: 1) it is an attractive entry point in the company’s evolution toward becoming a service provider, 2) the company has the right end-market focus to drive robust organic growth, and 3) they have the ability to weather a slowdown in business confidence and IT spending. Modeling 4% revenue growth over the midterm, on a 12 month forward basis he sees $200MM in EBITDA, $80MM in cash interest, $10MM - 15MM in cash taxes, neutral working capital, and $20M in capex. Combining this gets him to $85MM in free cash flow, which equates to a HSD FCF/Debt. Blending the growth prospects and free cash flow generation together, he thinks the credit will deleverage from 5.5 turns down to 4.5 turns within the next 18 months. He prices the risk at 8.5% - 9.0% which implies the bonds would trade up to the 105 - 110 range and his investment would achieve mid-teens+ IRR.