Mangrove Weighs Bond Refi Instead of Thermal Solutions Sale After Leverage Falls to 2x; Repays RCF Draws in Full on Robust Q4 Cash Generation

German heat exchanger manufacturer Mangrove, fka Galapagos, is weighing a return to the market to refinance its €356 million senior secured 2025 bonds. The group had put its Kelvion Thermal Solutions business up for sale last year and appointed Rothschild to run the process in order to fund the repayment of the bonds. But following strong trading, which resulted in net leverage falling to just 2x, sponsor Triton is now considering a straight refinancing instead, in either the bond or private credit markets, unless it receives a favorable bid for the thermal solutions division, sources said.

Following a 2019 restructuring, the group had been facing some legal risk as a result of junior creditors challenging the deal in multiple jurisdictions. But that risk has now been lifted after their final attempt failed when the UK High Court denied permission to appeal an August judgment upholding the restructuring.

Mangrove’s revenues jumped 24.6% year over year in the third quarter to €351.7 million, while reported EBITDA surged 29.5% year over year to €31.3 million. On an investor day held in early December, management guided to a strong Q4 as well, while the group’s solid order book leaves it well placed to maintain its positive momentum during 2024, sources noted.

The group is also generating a solid level of free cash flow, which has enabled it to pay down draws on its RCF. After repaying €5 million during Q1, €10 million in Q2 and another €5 million in Q3, it paid down the remaining €45 million following a strong working capital inflow and continued EBITDA growth during the fourth quarter, which means the €65 million RCF is now fully undrawn.

Mangrove is planning to refinance the revolver as well as its guarantee facilities during Q1’24 and then refinance the bonds by mid-year, sources said.

The group remains well positioned across several growth sectors, such as data centers and renewable energy, which is helping offset some of the macro-economic weakness in Europe. It also benefits from a strong high margin service business, which accounts for around 30% of EBITDA, sources noted.

The bonds have rallied from around 70 in the middle of last year to around 94-mid, according to Solve Advisors.

Mangrove’s capital structure as of September 2023 is below: