Emergent BioSolutions: Distressed Debt Offers Attractive Risk-Reward

Parul Garg of PenderFund Capital Management presented her thesis on the fulcrum security of Emergent BioSolutions (US: EBS) at Best Ideas 2024.

Thesis summary:

Parul likes the risk-reward offered by the distressed first-lien term loan and unsecured bonds of Emergent BioSolutions, a U.S.-based specialty pharmaceutical company.

The term loan recently traded at 88 cents on the dollar, yielding 17% to maturity, while the unsecured bonds traded at less than 40 cents on the dollar, with a yield to maturity in excess of 27%.

While Emergent BioSolutions is a vital supplier to the U.S. government, it encountered operational challenges in 2022, particularly within its manufacturing division. Following a second round of cost cuts, the company is striving to achieve positive cash flow.

During the summer of 2023, Emergent BioSolutions introduced an over-the-counter (OTC) Narcan nasal spray, potentially transforming the landscape of opioid overdose prevention amid the ongoing North American opioid crisis.

With a revenue target of $1 billion and total debt in the capital structure amounting to ~$900 million, the company has recently drawn scrutiny with regard to the covenants on its senior credit facility.

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About the instructor:

Parul Garg joined Pender’s investment team in December 2015. She is currently the Associate Portfolio Manager for the Pender Corporate Bond Fund, which was recognized with a Lipper Fund Award in years 2018 and 2019. She covers all sub asset class in fixed income ranging from Investment Grade to Distressed credit. Her focus and expertise revolve around stressed and distressed credit. For the last 7 years, she has been involved in many credit workouts, pull to par, stressed debt exchanges, bankruptcy credits, restructuring, and recapitalizations.

Parul started her career as a Software Engineer with Accenture, focusing on projects in the financial domain. She then worked as a Fixed Income Derivative Analyst for two years at a private investment firm in India. She worked in Product Development with the Business Development Team for the Fixed Income Markets at the MCX Stock Exchange in India for a year and a half before moving to Vancouver in 2014 to start her MBA. Parul has a Bachelor of Technology in Civil Engineering from NIT Surat in India, a Master of Business Administration from the Beedie School of Business at Simon Fraser University and has completed CFA Level 1. In June 2022, she attended Warton School of Business (University of Pennsylvania) for Distressed Asset Investing and Corporate Restructuring course. She also sits on the Steering Committee for the Vancouver chapter of Women in Capital Markets.