PBI 6.875% 03/15/2027 & PBI 4-Year CDS

Pitney Bowes Inc

Credit, Consumer, Industrial/Transportation


Publicly traded companies mentioned herein: FedEx Corp (FDX), Pitney Bowes Inc (PBI), United Parcel Service Inc (UPS)

Highlights

The presenter is long both the 6.875% guaranteed unsecured 2027 notes of Pitney Bowes Inc (PBI) and the 4-year CDS against it, seeing a mismatch that will be realized as the company’s financials deteriorate and a credit event occurs. PBI is a global shipping and mailing company that provides technology, logistics, and financial services to SMBs and >90% of Fortune 500 companies. Its legacy business comprises 60% of revenue and over 100% of the combined EBITDA, while the newer Global Ecommerce segment has generated -7% EBITDA margins YTD. Although the legacy business is cash generative, it is directly tied to the postage and mailing industry, which declines at 3.5%+ per year and even more rapidly during recessions (MSD% – HSD%). Due to the secular decline in the legacy business and the cash burn from Global Ecommerce, the presenter expects PBI will have trouble refinancing its capital structure as it approaches upcoming debt maturities beginning in Q1’26. This creates an interesting setup for his pair trade. The CDS is currently tied to 2027 notes, but the 6.7% non-guaranteed notes due 2043 should be deliverable into the CDS upon a credit event. In a downside case, he expects the 2027s to recover 40 cents on the dollar while the non-guaranteed 2043s get wiped out, allowing investors to capture that CDS spread upon delivery of the 2043s.

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Idea Discussion

Commentor 1 - 2 weeks ago

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