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Transport group Mobico sold its North American school bus business after seeking buyers for almost two years. The divestment was designed to chip away at its debt pile, which had ballooned after a series of losses during a grinding recovery from the pandemic. The end result disappointed analysts and shareholders alike, however.
It wasn’t just about the underwhelming final price, but also the significant value leakage in the deal. A chunk of upfront cash proceeds is earmarked for payment of legacy leases and historic claims tied to the school bus business instead of being used to clear debt.
The National Express owner said the deal was therefore expected to have a “neutral” impact on covenant net debt, a metric that excludes its £500mn hybrid perpetual bond and debt-like items, such as fleet and property leases. In other words, a sale that was originally conceived to reduce leverage is no longer expected to move the needle.
As a result, the pressure is still there. Mobico’s covenant gearing ratio stood at 2.8 times at the end of last year. The company had previously targeted a reduction to between 1.5 and two times by 2027, but has now softened that to “over time”. Ignacio Garat, who stepped down as Mobico chief executive last month, said prior to his departure that other options to reduce debt remain “under active consideration”.
The shares are down 45 per cent since the deal announcement, which came alongside a warning that adjusted operating profits for 2024 would land at the lower end of guidance. The group was also hit by a number of “one-off” items, which took its statutory post-tax loss for the year to nearly £800mn.
One bright spot was Spanish subsidiary ALSA, which performed ahead of expectations. Francisco Iglesias, chief executive of the division and Mobico’s group chief operating officer, is showing some confidence despite the wider company’s struggles. He bought €98,350-worth (£83,552) of stock on April 29.
