Early Innings of a Buyer’s Market in AI Infra Credit

The sheer volume of issuance is forcing discipline back into the market after an initial honeymoon period where previously underweight market participants blindly absorbed any and all paper on offer.

Through August, we have already seen $2.2T in global IG supply driven by over $400B of AI-related issuance. This sets the tone across the risk-curve, including for the private and sub-investment grade markets.

Importantly, this incremental 20% of supply is now expected to be a recurring component of future volume supporting >$1T of projected AI capex per annum. As a result, the pressure to “chase deals” is getting dialled back.

Financing for US datacenters alone is already ahead of full-year 2025 and the pipeline is only accelerating from here:

Subscribe now

Calling All Precincts

As the land grab intensifies, so does the fight for the marginal dollar.

Funding is becoming more onerous as participants hit concentration limits and originally pristine balance sheets draw increased scrutiny. We already discussed how some players like Oracle have maximised their borrowing capacity.

Even Nvidia is facing some resistance and scaling back off-balance sheet guarantees. The recent $500B announcement alongside Apollo, KKR, GS, Brookfield, BlackRock and Blackstone was just a glorified marketing pitch:

“This is calling all precincts […] not just one market of equity or debt or banks, but it’s all. It needs any and all.” – Jim Zelter, Apollo

Every nook and cranny of the market is now in play – term structures, private, public, equity, credit, structured, rated, un-rated, CAD, GBP, JPY, AUD.

The technical set-up is also compounded by an uncertain fiscal backdrop as even Bessent is competing for dollars at the long-end of the curve.

Game Theory Dictates Wider Spreads

The Goldilocks scenario is that deleveraging outpaces the physical limits of the capex pipeline. Our call is that the arms race inevitably ends up testing the limits of the market’s appetite to absorb incremental supply:

1. High ROI will only encourage more capex / issuance

2. Low ROI will trigger a negative credit event

What does this mean for yields?

In a bullish environment, continued supply & demand imbalance should generate attractive relative value options.

If we get a deeper dislocation, a large menu of absolute double-digit credit returns will be on the table and we will be in serious business.

Either way, we anticipate volatility ahead in what will increasingly be a buyer’s market and where alpha in credit security selection will make a comeback.

Subscribe now

The HY Datacenter Project Finance Opportunity Set

HY datacenter project finance bonds are already showing dispersion with YTMs ranging from 6-10% and YTCs of 7-14%.

This segment of the universe is interesting as it has the potential to offer significant excess spread vs. maturity-matched Hyperscaler (tenant) risk.

Since these hybrid, non-traditional project finance deals came about as a way to bridge the gap between (i) Hyperscalers’ need to quickly ramp-up capacity and (ii) crypto miners’ transition to Hyperscaler landlords/REITs, there is both:

• Significant nuance between the risk-profile of each offering

• A clear opportunity for a re-rate post CoD

In particular, given the call features in place, we think there will be alpha in identifying the structures that offer the highest probability of an early take-out.

In the rest of the article, we highlight key considerations when evaluating and normalising these structures. We then use CIFR as a benchmark case study and discuss our preferred security within that complex.

Subscribe now

Read more

Flash | PYPL 3.25% 2050s: 1.5x MOIC Still Live

So that you can play around with the scenario distributions (we know there are wide-ranging opinions here!).

Subscribe now

Read more

Welcome back!

The unprecedented deluge of both IG and HY issuance to finance the multi-trillion AI infrastructure buildout continues unabated.

Meanwhile, as the US national debt crossed the $40T mark, Scott Bessent shot a first salvo in his mission to tame the long-end of the curve.

The problem?

Bessent is trying to get the market to do the work for him at a time when competition for the marginal dollar into high-grade duration paper is heating up.

He took out his water pistol (doubling the cap on 10-30Y buybacks to $4B) in what was a signalling move more than anything.

A seemingly recurring feature in the Bessent playbook. Remember this?

Even though Wednesday’s announcement sparked an initial rally in everything from equities to bitcoin, credit markets were quick to sniff this out.

By Friday, the 10Y and 30Y completely reversed their initial move:

The technicals are clearly not working in his favour.

The reality is that Bessent’s leverage with the market is directly tied to the AI infrastructure buildout.

The marginal real-money buyer of long-dated government debt is now being offered a recurring menu of high-grade corporate paper at increasingly attractive spreads and all-in yields.

A fascinating tug-of-war dynamic that is set to continue through year-end and beyond as the market’s ability to absorb new issuance gets tested.

Subscribe now

The US Treasury is Competing for Liquidity

Scott Bessent more or less confirmed this game plan to the WSJ:

“Part of it is signalling here, and to show that we believe that the yields don’t reflect the underlying fundamentals.” – Scott Bessent

The issue is that Bessent is fighting major technical headwinds when it comes to pricing long-duration credit.

Hyperscaler issuance is currently on pace to reach $316B according to JPM’s latest August revision, or 3x last year’s issuance.

IG credit markets are incredibly deep but even then this is forcing a repricing at the margin:

• Hyperscaler books fell from nearly 5x covered in February to below 2x

• Median new-issue concession increased to 12bps in 2026

• Technology credit now trades 9bps wider than the overall IG index

Insurers, pension funds and global credit portfolios are bumping up against concentration limits and an ultimately finite set of risk and duration budgets.

This week, Blackstone / QTS priced $3.9B of senior secured notes for the Microsoft-linked Georgia DC (Project Odyssey) at an effective YTM of 7.2%.

This compares to an April ($4.6B) QTS print of 5.7% – and although there may be some structural differences, that paper was indicated at 7.16% earlier this week.

The competition for dollars is most pronounced at the long-end of the curve where even top issuers are having to pay up for duration.

Earlier this month Alphabet priced $23.75B of fixed-rate bonds. All the tranches north of 20Y got priced at >100 bps for effective yields between 6.3% and 6.5%.

The broader effective yield for 15+ year paper has been steadily increasing all year, and this trend does not appear to stop anytime soon:

• AI infra build-out continues = more issuance

• AI infra build-out stalls = negative credit event

This dynamic sets us up for compelling entry points into credit in the quarters ahead as spreads continue to widen and / or something eventually breaks.

We are already seeing the knock-on effects across the risk curve – as evidenced by CCC spreads crossing the 1,000 bps threshold into distressed territory – ahead of a 2028-29 maturity wall (which could in fact, be different this time!)

Subscribe now

Apollo & Athene Well Positioned

Long-time readers know that we hold a core position in which we view as a structural long-term winner in a number of macro scenarios.

This is because of Athene’s ability to layer into widening spreads with meaningful incremental inflows that are detached from the traditional LP cycle.

Athene originates ~$82B per annum in long-duration liabilities and has been matching that pace so far this year with $42B in H1 (notably with a rebalancing away from funding agreements which dominated FY25).

Additionally, we view any shake-up / stress in the industry as long-term beneficial given the platform’s best-in-class opex / origination / risk underwriting.

Athene will be a major beneficiary of increased yields in high-grade, long duration credit and we expect increasingly profitable vintages and improving SRE economics to start feeding through into FY27 numbers.

Here is a recap of the Athene & Apollo flywheel unit economics:

In particular, we view any noise surrounding life insurance / private credit as a buying opportunity. The developing Guggenheim saga could be a further catalyst for (welcome) weakness in that respect.

For a deeper perspective on Athene you can access our original thesis here:

Hope you enjoyed this weekly edition!

In case you missed it, earlier this week we published (i) our thoughts on Klarna following a 30% drop post Q2 results and (ii) our latest view on the PYPL 2050s as merger discussions with Stripe/Advent appear to be heating up.

You can find these here:

• Klarna: too cheap?

• PYPL 2050s: 1.5x MOIC still live

Enjoy the rest of your weekend!

Share

Welcome back!

We originally did a deep dive on in Deep | Klarna: Inflection Point? which we invite you to (re)visit.

This was back in May after the shares had dropped over 60% post-IPO.

The thesis was based on Klarna being oversold relative to a broadly misunderstood balance sheet risk profile and profitability trajectory.

Shares subsequently rallied +40% before fully retracing this week on the back of Q2 results where we got:

1. FY26 top-line (GMV/Revenue) guidance cut down to ~17% growth

2. Departure of CFO/CMO announced

Despite this, Q2 was a material beat on profitability (TMD and AOI) including FY26 TMD guidance being raised.

This wasn’t the first “botched” guidance from Klarna, which continues to undergo growing pains as a listed Company, inviting steep execution discounts.

While scepticism is warranted, we find that most of our original thesis remains intact (and supported by recent developments) with the R/R at these levels arguably more attractive vs. our original entry.

This is especially true post the >$1B in expected net proceeds (25% of mkt. cap) from the Google litigation which we wrote about here.

At just $2.8B Adj. EV (see calculation below) we view the 85% discount vs. Affirm’s 26E TMD multiple as overly penalising.

At these levels, we are buying this difficult to replicate two-sided network at a normalised 28E adj. EBIT of just under 3x.

Subscribe now

Read more

This is a follow-on update from: PayPal 3.25% 2050s: Put Option in Play

It’s been over a month since Reuters first reported Stripe and Advent’s all-cash offer to take PYPL private at $60.5 / share.

After a few weeks of muted news flow, The WSJ came out with the following last Friday — suggesting discussions were still very much live, with a potentially imminent resolution:

“Stripe and Advent in July proposed paying $60.50 a share for PayPal, a price PayPal viewed as insufficient, some of the people said. The two sides have since been negotiating a potentially higher price, the people said.

It is possible a deal could come together in the coming weeks, though there are no guarantees the parties will reach an agreement.” — WSJ

As a brief recap, we have been interested in the PYPL 3.25% 2050s (the lowest dollar price bonds) which we viewed as mispriced relative to the probability of a par take-out in an M&A scenario.

Given our read of the (limited) S&U details we viewed the CoC put as “in-play” (ratings downgrade) and in fact a pro-active clean-up as being most likely given both (i) deal & regulatory dynamics and (ii) reported equity contributions:

• Buyers: Stripe + Advent International (joint offer)

• Price: $60.5 share in cash / $53B equity value (28% premium to unaffected)

• Financing: $50B committed bank financing

• Equity: $17B from Stripe / Advent / Block (per CNBC)

Origo illustrative S&U at announcement:

The bonds retraced post the initial news, likely due to a combination of the following:

1. Limited follow-on news flow

2. Stripe / OpenRouter deal (perception around priorities)

3. Long duration getting hit (30Y is +20bps over the past month)

4. Read of the docs and PTSD on defeasance (EA)

5. Credit investors hate binary outcomes even if skew is +EV

While liquidity may be limited at these levels, we view the 66-68 range as asymmetrically compelling with ~4-5% downside (including carry) and 10-55% upside in a range of scenarios (including defeasance / litigation).

Notably, unless the bid changes from being all-cash for 100% of the shares, we do not see a BidCo survives / dropdown structure as a feasible path to circumvent a CoC and subordinate the bonds in a more drastic downside scenario.

This is all happening on an accelerating timeframe, so let’s take a closer look at our latest R/R calculations as we game out the outcome distribution here.

Subscribe now

Read more

In this note we will be sharing our latest thought process since a lot has happened in that window:

• Q2 for both ECHO and SPCX

• First SPCX unlock

• HSCC filing for Chapter 11 following non-payment of August maturity

We also put a floor on where we’d treat SPCX as a “snap buy” (if we ever get there) and how that feeds into our framework on ECHO.

Under $90, we see ECHO as heavily downside-protected independent of SPCX fluctuations with an R/R skew firmly back in asymmetric territory.

If you haven’t read the longer take on ECHO post SpaceX IPO, start here.

Subscribe now

EchoStar Q2 Earnings Call – Captain Obvious

As expected, analysts pressed Ergen hard on capital allocation now that the AT&T transaction has closed.

Read more

Title credit: @skgoodwin23

Citadel lost $8B in 2008 – a 55% drawdown that nearly destroyed the firm Ken Griffin had spent 20 years building.

As is often the case in life and in business, this came right after a high point. Citadel was coming off a +30% year, assets had peaked at a record $20B and Ken Griffin – just 41 – sat at the top of the food chain.

He had already built a reputation as an opportunistic apex predator: recruiting from Enron’s abandoned trading floor and absorbing Amaranth’s portfolio.

At the onset of the subprime crisis, he pounced on the opportunity to rescue ResMae Mortgage, Sowood Capital and E*Trade.

The problem? He was too early.

Citadel was deploying aggressively into a downturn that proved deeper and longer than expected. At 7:1 leverage, there was almost no room for error.

Despite the blood in the water, Citadel avoided becoming a forced seller. It contained the rumours, secured enough liquidity and held its positions.

Nonetheless, the experience rewired the firm’s approach to risk.

Citadel has not had a down year since.

Subscribe now

Staying Power

Nothing like summer doldrums to ignite some volatility in the markets.

Whether it was:

• The liquidation of Leopold’s public book and over 1.2m Korean retail accounts

• US 30Y touching 5.2% and credit spreads widening in AI infrastructure

• MSFT / AMZN outperforming (+21.7% and +17.0% on the week respectively)

All were expressions of the same idea: path dependency.

Few doubt that AI will profoundly reshape the economy.

That does not mean every investor or company expressing that view will make money. In fact, it is often the biggest believers who end up blowing up along the way.

Recent events are a stark reminder that leverage (and its structure), duration and concentration all matter.

Experienced market participants will always value flexibility over marginal pricing gains.

For debtors (whether funds, investors or companies), that means prioritising runway and control in adverse scenarios over an extra 25bps.

Creditors must decide whether that flexibility is worth extending and at what price.

Being right is useless if you cannot reach the finish line.

We argued last week that ORCL was stretching its toolkit in a way which increasingly required perfect execution.

In contrast, we had the following to say about MSFT:

MSFT is positioned to act as a Citadel in times of stress.

Credit markets don’t like binary outcomes

Gavin Baker – who is infinitely more knowledgeable about the AI ecosystem than we are – came out with the following tweet:

What he is saying probably makes sense through the lens of an equity investor and no doubt a decent % of the AI capex spend is +EV.

Credit has the opposite payout asymmetry and in our view the recent repricing is absolutely warranted.

This wouldn’t be the first industry where spot prices ran ahead of contracted economics as a precursor to oversupply.

CoreWeave felt that push back this week. The Company sought a delayed-draw term loan to fund new leases and GPU purchases against a concentrated compute-contract book, with Anthropic representing 40%.

Initial terms were reportedly a non-starter. Investors demanded tighter covenants, a lockbox feature with a revenue-based based waterfall and wider pricing (+550bps over SOFR at a 96-97c OID). They also flagged the mismatch between 15 year leases and rolling 3-5 year compute contracts.

AI infrastructure is increasingly a credit story. Expect more scrutiny across the capital structure and value chain. Liquidity has a price again.

Subscribe now

Price vs. Expectations

SK Hynix reported record Q2 operating profit, up 557% YoY. Shares still fell another 10%. Another reminder that positioning and expectations matter more than the result.

The mirror image of this is a trade underwritten on unheroic assumptions:

We laid out our longer thesis for OWL on Wednesday before earnings:

As expected, while challenges remain, the sky is not falling:

• FRE beat

• Institutional flows +30% YoY

• Wealth likely troughed in May

• Evergreen inflows +50% (low base)

• 90% of OCIC investors requested zero redemptions

• Loan repayments alone cover >3x net outflows

• $31B of AUM to be activated (+$380M fees)

OWL ended up +9% on the week and is now +18% on the month.

Interestingly, KKR reported on the same day.

Contrast the following two headlines:

With the subsequent relative performance:

On the subject of Alt GPs, Blackstone pared some gains after reporting Q2 earnings the prior week with Stephen Schwarzman calling BX stock: “the most inexpensive way of playing the AI mega trend”.

We took a closer look at that assertion. If you have not read it yet, check it out!

Subscribe now

Hopefully you are easing into the slow part of summer from somewhere sunny.

At Origo, there is no slowing down: we have a full pipeline of research on the way for you to enjoy over the break!

Thank you for your continued support and please consider sharing Origo with your broader network.

Share Origo Research

It wouldn’t be the first time Stephen Schwarzman has lamented BX’s valuation. When the large listed asset managers first entered the public sphere in 2015-17, he embarked on a sustained, almost obsessive campaign to convince investors they were underpricing the stock.

Back then, the sector traded at ~9x P/E. The market struggled to assign a higher multiple to volatile, low visibility carry. We know what happened next: FRE became the mantra, the revenue mix grew stickier and more diversified, and Alt GP multiples rerated all the way above 35-40x at the peak – overshooting in the other direction.

Since then, the sector has cooled off. BX specifically sits ~35% below its peak – a middling result relative to peers, reflecting an underperforming Real Estate franchise (former engine) and, potentially, the absence of a captive insurer generating less-correlated inflows.

Subscribe now

Unsurprisingly, Stephen Schwarzman is attempting to reposition the narrative.

At face value, he has a point: few private-capital platforms have committed as much capital – or spread it across as many parts of the AI stack, particularly on the equity side.

The firm has been putting serious dollars to work across the board. This includes datacenters, power, compute credit and equity in the frontier labs.

Blackstone has also created a dedicated AI unit, N1, to centralise sourcing and expertise (N1 is not a dedicated fund, it draws capital from BXG, Tactical Opportunities and BXPE). How this works in practice remains to be seen.

The key question though:

How does this all translate into value for the GP?

BX shareholders participate through management fees, performance fees, carry and the firm’s comparatively small GP investments – not through direct ownership of the underlying assets.

To its advantage, BX has a higher proportion of equity-related strategies relative to its credit-oriented peers, implying higher potential performance-related fees.

BX currently sits on $7.5B of NAPR (net accrued incentives). It also has material AI exposure inside perpetual vehicles, creating recurring management fees (on an increasing NAV) with periodically crystallised FRPR.

How much of this is captured in the stock at $159B market cap? How should we think about BX relative to peers in the context of its AI optionality? Is this truly a no-brainer way of catching the AI wave while limiting downside?

Keep reading.

Subscribe now

Read more

In today’s increasingly reflexive markets, we should be thankful to the media.

Sentiment-driven volatility continues to generate +EV entry points for the opportunistic investor – or anyone with a modicum of independent thinking, analytical drive and an investment horizon extending beyond two quarters.

Blue Owl has been the press’ pet piñata all year long. While there is rarely smoke without fire, the accompanying price action – both on an absolute basis and relative to comps – has been reflective of a patient in terminal decline.

Our audience is no stranger to separating noise from fundamentals. Even so, the following visual we put together on OWL may surprise you:

Redemption requests represent only ~3% of Blue Owl’s total fee-paying AUM.

Meanwhile, $30B of existing AUM – or roughly 5x total redemption requests – is expected to become fee-paying within the next 24 months as that capital gets deployed. This ignores new subscriptions into OCIC + OTIC and broader ongoing fundraising efforts.

Low Bar

Low is a suitable anagram for Owl here.

As we like to hammer, investing is a game of price vs. expectations. Case in point: as we are writing this, SK Hynix is getting punished for posting a below consensus Q2 EBIT of “only” +557% yoy (!)

The bet on Blue Owl is simple. It requires believing that:

1. OWL has valid standalone franchises outside of credit

2. The credit business itself should be valued on a going concern basis

While we did take a toehold position in OWL earlier this year, we were wary at the time of stepping in front of negative momentum too soon.

We now feel more comfortable sizing up. We will discuss why, alongside our valuation expectations for the stock in the short to medium-term.

Subscribe now

Read more

The investment grade credit market is all but tapped-out when it comes to financing Larry Ellison’s gigantic call-option on compute.

Gross leverage through its $130B financial debt stack already sits at a punchy 4.4x LTM EBITDA, but it is the scale of the off-balance sheet commitments which is keeping the market on edge.

On a future value basis, contracted leases alone total $300B:

• $40B already in-place (5.1x LTM EBITDAR)

• $260B coming on line through FY29

Add $32B in committed purchase agreements (power orders and cloud infra) and we are closing in on almost half a trillion dollars of future obligations.

Of course, there is a supposed method to the madness. An insatiable demand for compute and $638B in RPO conversion – assuming OpenAI pulls through – is the prize at the end of the tunnel. The journey to the other side? A minefield which Larry Ellison is navigating with an increasingly limited toolkit.

Subscribe now

A $40B Funding Gap

In order to deliver the ramp there is a significant capex outlay required to bring the capacity to full fit-out. Starting with FY27, which will be a real litmus test: $92B in gross capex, which cannot be fully funded organically.

The Company already knows that the IG bond market is almost capped out – adding an extra 1-1.5x of leverage here could tip ORCL firmly into junk territory.

Which may mean issuing $40B of equity into a declining market cap?

A ~12% dilution at current levels for what would be somewhat of an unprecedented capital markets exercise at this scale!

There are some levers which ORCL can still pull if push comes to shove:

• Our funding gap calculation leaves $25B in liquidity headroom (cash + RCF)

• They can still cut $6B in dividends

The biggest lever is obviously resizing the capex spend – but at what cost?

See, ORCL is walking on a tightrope when it comes to sequencing the end-to-end delivery of its datacenter capacity. They can delay capex – but those lease commitments represent real fixed costs coming on-line regardless, and every delay ultimately eats into project IRRs and the economic viability of the entire strategy. If and when they decide to do this, it will be interesting to see how the market reacts.

The Open(AI) Question

Even if ORCL delivers its end of the bargain, the elephant in the room remains its concentrated RPO exposure to OpenAI: $300B.

This is of course magnified by the fact that ORCL is not OpenAI’s only provider – in fact OpenAI has over $440B of commitments in place with other counterparties.

The bull case – and what management is arguing – is that they are not worried about this concentration risk because excess compute will always find a home in the world in which we are headed.

Big picture, we would agree with this. Specifics are important though when we are dealing with limited margin of safety.

An aircraft lessor can reposition an aircraft away from a defaulted airline, but it might take 12 months of downtime, unforeseen maintenance costs and a lower lease-rate on the other side

So here is the (literal) trillion dollar question:

We would put forward the following as food for thought:

• Target universe: limited set capable of absorbing $300B in contracts

• Correlation: if OpenAI is not money good, they will not be alone

• Supply: if OpenAI is not money good, there will also be more supply

The risk is that ORCL becomes a known forced-seller of compute (affects price) and / or is obligated to pursue a more distributed strategy (which will take time, and time is money).

Subscribe now

Fallen Angel or $1T Market Cap?

ORCL is at a critical inflection point in what looks like an increasingly binary set of potential outcomes.

Credit markets are spooked by the reality of the execution ramp-up risk: spreads have widened ~70bps since June and the CDS is at an ATH, exceeding 200bps.

Oracle is one notch away from becoming the largest fallen angel in history (3x Ford in 2020), and would represent a whopping 8% of the index on entry.

Where ORCL does maintain some flexibility is the maturity schedule of its bond curve – a structured call option if you will.

It will be fascinating to watch (from the sidelines for the time being) how this all unfolds over the next 12 months. We would not bet against Larry Ellison (besides the R/R is much less attractive here) but equally ORCL is leaving itself little room for manoeuvre, exposed to the forces of gravity in either direction.

Share

Sharing the excel underpinning the latest ECHO write-up.

This covers our up to date NAV breakdown + value flow, alongside the discrete trust & catalyst/merger analyses we cover in the article.

Subscribe now

Read more

EchoStar has become an orphaned security (again)

No longer relevant as a SpaceX proxy in a post-IPO world. Legacy, melting ice cube businesses. Chapter 11 headlines. Incessant noise linked to contingent claims and unclear timelines. Valuable spectrum assets – yes – but proceeds that have yet to hit the bank. And if and when they do, minority holders remain at the mercy of Charlie Ergen’s next big swing.

A case of post-catalyst depression, as the cold, hard reality sets in. To top it off, negative reflexivity in SPCX is now in full swing: a broken IPO and looming insider unlocks are keeping active buyers on the sidelines till the dust settles. An event already priced in was perhaps not a real catalyst.

Investing is a game of expectations – specifically, understanding what the market is already positioned for.

Increasingly, the prevailing view on EchoStar goes something like this:

1. Realisable stub value still carries too much execution risk. Better to wait.

2. No visible direction, with perpetual Ergen torpedo risk.

3. The SpaceX IPO was the endgame and there is no catalyst left.

Now that we are on the other side of the IPO, we need to be aware that we are at a new decision node, with a new set of parameters, requiring a fresh underwrite.

Recent price action and declining expectations have helped flip the script, giving us another potential bite at the apple:

• Old thesis → be early to SpaceX, sell shiny new toy ahead of the event

• New thesis (emerging) → Echo stub is actually real, Ergen can be rational

While we did ok with the old thesis, we only partially executed on the way out (TP anchor bias over stated process) and underestimated the sheer liquidity drain from the myriad of secondary SPVs and broader pre-IPO availability.

The new thesis slowly emerging is one that takes us closer to our distressed debt roots: make money when things aren’t as bad as people think. With the wrinkle that in equities, unlike credit, there is no contractual promise at the end of the tunnel.

Show me the incentives: a working theory on Ergen’s endgame.

It is often forgotten that EchoStar is still in the middle of a multi-stage transformation which so far has delivered tremendous value over the past 24 months. In this article, we will articulate the remaining value unlocks and why there is money to be made by simply climbing the wall of worry.

More interestingly perhaps: we will submit a working thesis on Ergen’s endgame, informed by a detailed look into the mechanics of his family estate and the recent shutdown of EchoStar Capital. A speculative endeavour, but with a high payoff that only needs to be right 20% of the time for a compelling set-up.

If our hunch is correct, we would expect a genuinely unpriced catalyst to force a one-off rerating sometime in H1’27.

Subscribe now

Climbing the Wall of Worry

EchoStar is trading at a 17% discount to its contractual holdings in SPCX alone.

Suffice to say, the market is assigning very little value to the ECHO stub.

That scepticism has only been exacerbated by continued delays to the AT&T transaction, which ultimately pushed DISH DBS into Chapter 11.

These are the kinds of headlines that prompt even sophisticated investors to put ECHO in the “too hard” bucket—at least until there is more clarity.

1. AT&T: The First Trigger for a Meaningful Clean-Up

The $22.6B transaction has been holding up a series of pre-programmed events.

We believe the only pending CP in the AT&T SPA was satisfied this week, largely under the radar.

The final CP required an amendment to the original T-Mobile–Sprint consent decree, which obliged EchoStar/DISH to operate a nationwide RAN. That obligation needed to fall away explicitly before completion.

From here, DNC must give 10 days’ notice to redeem its 11.75% bonds, which are due to be settled at closing.

We expect that notice any day. It would effectively telegraph an imminent close and set the following in motion:

• Repayment of substantially all DNC liabilities

• Settlement of Dish DBS $7.6B interco liability (a key CP under the pre-pack)

• Subsequent emergence of a deleveraged DISH DBS from Chapter 11

As a reminder, the Dish DBS RSA was originally announced in March (we covered the terms here) and currently has 88% creditor support. Pro forma for the restructuring, the business will emerge at ~2.0x leverage, clearing the path for a potential sale to DirecTV.

2. Extinguishing Contingent Liability Overhang

Some uncertainty remains around residual claims from the Wireless box.

The range of incremental outcomes is relatively modest in the context of the broader thesis. Even so, the overhang is real and needs to be put to bed.

Much of the risk associated with the ~$6B of tower claims is already addressed by the FCC-mandated $2.4B trust – funded from the AT&T proceeds – with some nuance: once the trust is established, claimants must decide whether they prefer to (i) opt in and forfeit any further claims or (ii) continue to fight. We expect that process to take place in August.

Crown Castle is the largest claimant ($3.5B), followed by American Tower ($2.0B). CC is being advised by Paul Weiss, who as one would expect, is pulling out all the stops to justify preserving claims against non-debtor entities and improve its client’s negotiating leverage ahead of an eventual trust opt-in (perhaps with a modest top-up in a downside case).

Other residual Wireless claims should largely be addressed through the 363 sale, with assets transferring free and clear and claims attaching to the sale proceeds or remaining estate.

3. Monetising Legacy Assets

PayTV

We already touched on DISH DBS where the path seems pretty clear. In fact, the RSA makes multiple references to a merger with DirecTV:

The transaction would have already taken place two years ago if it were not for the capital structure and egregious exchange terms offered to bondholders. Significant synergies of >$1B were being discussed at the time, which would still be relevant albeit at a reduced scale. Haircutting these by 40% and applying a modest 3.5x PF EBITDA, we get at least $6B of equity value back to ECHO (more likely, they are looking to recoup in excess of the DNC intercompany).

Retail Wireless

We view standalone monetisation this year as unlikely. Nonetheless, the existing 7.5M subscriber base has clear floor value.

Boost now runs primarily over AT&T’s RAN, with potential ambitions to reposition as a hybrid terrestrial-satellite operator (through an eventual Starlink D2C agreement).

Despite being a breakeven operation at best today, the 7.5M subscriber base would be of strategic & commercial interest both to existing incumbents as well as SpaceX.

AT&T is a natural here, but T-Mobile and Verizon should also be in a position to absorb the subscriber base at >75% gross service margin. A deal anywhere around 1.0x pro-forma GP would be significantly accretive to buyers vs. their current trading levels, while yielding ~$300 / sub back to Boost / ECHO.

4. Monetising Remaining Spectrum

The recent FCC 113 re-auction provided an interesting read-across which we first touched on here.

In addition to eliminating any contingent liability for ECHO by crossing the $2.9B threshold, the auction ended up clearing at $3.57B or $2.53/MHz-POP.

While the remaining AWS-3 spectrum is G-heavy, it forms part of a larger contiguous portfolio (rather than disconnected items) and there are very few near-term opportunities to buy licensed mid-band at scale. Verizon is the most likely buyer here and our $2.5/MHz-POP base case assumption is realistic if not conservative.

Subscribe now

A Clean Stub in Six Months?

Within six months, we should be in the following position:

• More than $9B of excess cash at HoldCo

• Substantially all DNC liabilities repaid

• DISH DBS emerged from Chapter 11

• DISH Wireless 363 sale completed

• Remaining contingent claims resolved

On top of this, it is possible that:

• We have a deal on the DirecTV merger

• We have a deal on the unsold spectrum

• We have a deal on Boost

DirecTV is the most likely of the three, partially since we view the remaining spectrum + Boost as potentially strategic in a broader transaction.

Our “worst” case NAV of $17B assumes the following:

• Incremental contingent claims of $1B (on top of the FCC escrow)

• Zero HoldCo share out of the $1.5B of reported consolidated cash

• Full spectrum tax

• Low values for unsold spectrum and legacy OpCos across the board

At the SPCX share price of $124, post-CGT and applying an incremental 15% HoldCo discount on top, we get to $110/share which sits 20% above the current trading price of $92. That uplift extends to 36% and 61% in our base / upside cases respectively, keeping SPCX fixed at $124:

Six months also marks the end of the SPCX insider lock-up, removing overhang on that side of the equation. Even if SPCX falls another 20%, ECHO at $92 still appears to offer meaningful downside protection without a hedge.

Accumulation Window

Realistically, we remain in a bottoming out phase with respect to both SPCX and ECHO. This creates a 2-3 month window to opportunistically accumulate ahead of an inflection point where the market will increasingly start pricing in (i) the reality of the EchoStar clean-up + stub value and (ii) a post lock-up world for SPCX.

Simply executing should be sufficient to generate an attractive minimum return from these levels, recognising that the real overhang remains the strategic direction of the Company — and the uncertainty around what Ergen will do.

We believe Ergen remains underestimated despite having created tremendous value over the past year.

In the following section, we take a look at his incentive structure and a potential endgame resolution that could result in a significant re-rate.

Subscribe now

Read more

Asymmetry through credit set-ups are some of our favourite trades.

Back in February we wrote a piece titled: Equity-like returns on a A- rated bond?

The idea was to see if we could build a basket of IG bonds with a splash of upside convexity: park cash at >6% YTM with the added optionality of a 50% move.

For this, we were specifically screening through ZIRP era bonds with the following characteristics:

• Long-duration and low coupon = low dollar price (<75c)

• CoC (change of control) put triggers (obligation for sponsor to buyback at par)

M&A activity was picking up, and we had just witnessed the largest LBO take-private in history (Electronic Arts) signifying (i) a potential uptick of additional CoC clauses getting triggered in the short to medium-term and (ii) an expanded target universe, where >$30B market caps were no longer off the table.

In the case of EA, despite the defeasance shenanigans, the 2051s re-priced from 60c to 80c (with an extended interim period at 95c).

Two names jumped out to us in our screen: the eBay 2051s and the PayPal 2050s.

We already discussed eBay in detail during the GME saga.

Yesterday, it was reported that PE firm Advent, along with Stripe, had made an offer to acquire PayPal. This sparked an 8pt move in the 2050 bonds:

Despite cooling-off since¹, the possibility of a par take-out is very much in play, and we wanted to share some preliminary thoughts on the situation.

A game of probabilities with nuance around execution risk, pro-forma capital structures, incentives and indenture language — let’s take a look.

Note ¹: 67c unlikely real price, latest runs we have seen closer to 70.4 / 71.4

Subscribe now

Read more

Sharing the valuation model on Solaria with paid subscribers. This spreadsheet allows you to flex key inputs across each building block:

• In-place solar production

• DC powered land economics

• Growth BP (Solar / Wind / BESS)

Subscribe now

Read more

Free money?

On Friday morning, Sk Hynix 000660.KS closed at KRW 2,180,000, or a USD equivalent price of $1,454.

Later that day, its long awaited ADR got listed. With King Leopold leading the charge, SKHY closed at $168, stretching to $172 in the after hours — or $1,721 on an apples-to-apples basis vs. its Korean cousin at the 10:1 ADR/local ratio.

With the Korean markets closed, the apparent trade — if you could execute it — would be to buy local & sell American for an implied AH spread of 18.4%.

24 / 7 Markets

The arbitragoors on Hyperliquid jumped at the opportunity to front run the suits ahead of the Korean market open. Early birds that went long SKHYNIX / short SKHY perps got rewarded: at the time of writing, the spread sits at 15.6% on Hyperliquid, implying a decent 280bps compression in less then 24h, even on a funding-adjusted basis. Is it just that easy?

Subscribe now

ADR Arbitrage Mechanics

In a free conversion setting the idea is straightforward:

1. Buy cheap local shares in Seoul

2. Deliver them to the depositary bank

3. Get ADRs issued in the US (or reverse: cancel ADRs → get local)

The premium ultimately collapses to fees + FX + some lag linked to implied volatility.

Except in this case, we are dealing with constrained conversion rules including the following key restriction:

Depositary must get company prior consent for deposits of outstanding shares if total shares in ADS form would exceed the number initially deposited for the offering (the ~17.79M new shares / ~2.5% float), unless the company consents to more / files what’s required in Korea.

In other words, the gateway from Seoul to New York is closed (but you are more than welcome to cancel your American shares at a haircut).

This creates a structural premium for the ADRs, provided there is demand. With the ADRs >6x oversubscribed, suffice to say there is plenty!

The “issue” is further exacerbated by the limited ADR issuance as a % of float: only 2.5%. One of the reasons for this is due to rules we had previously highlighted around SK Square, the holding company: ownership cannot fall below 20% hence the dilution had to be managed.

So what is the “correct” spread?

The TSMC benchmark

The only real “comp” in the market is TSMC, which has a multi-decade history we can refer to and largely reflects the same dynamics at hand:

• Mega cap Asian semi with tight conversion rules (one-way)

• Same buyer pool (global AI/semi capital preferring a USD wrapper)

• Large USD float (i.e. premium is real and not distorted)

At Friday close, the ADR premium was 15.4% (almost exactly in line with SK Hynix at close and the HL market currently). Looking back over the past few months, the premium has been volatile but fairly sustained in the mid to high-teens.

How SK Hynix compares

So what are the key variables that matter in establishing fair value and how does SK Hynix compare to TSMC on those metrics? While there is a theoretical path to a more relaxed two-way convertibility regime for SK Hynix, our guess is that it is very unlikely in the short to medium-term (clear edge here for anyone able to develop a strong view).

The question then becomes a simple supply-demand problem. The Hynix float is significantly smaller, both in % terms as well as in $ terms. We are also starting from zero in terms of a passive, index/ETF driven bid.

On top of this, SK Hynix is incredibly volatile and the Korean Won has been depreciating in a straight line, increasing the friction costs typically associated with a higher, structural/perma-spread.

In summary — we see limited arguments as to why the spread should be much tighter vs. TSMC and would put the fair value range in the 12-17% range (certainly not under 10%). We would not be surprised if it even widens further in the short-term — at least as long as the memory mania continues.

We would love to hear your views as to whether there should be a strong reason for the spread to compress further in the near term.

Subscribe now

When Mr. Market is Bad at Probabilities

We started covering easyJet in early June ever since Castlelake announced its intention to take the airline private. Shares were trading in the 440-460p range back then and despite the still depressed levels vs. NAV, Mr. Market seemed to attach little value to any significant value unlock materialising.

Even after the 5th bid at 690p which garnered Board level support, the shares were languishing at under 610p, an implied merger arb spread of over 13%. We discussed in detail why we thought the execution risk was mispriced and shared our calculator earlier this week when easyJet traded down to 588p and the spread widened to 17%:

Fast forward to Friday, and our interloper case came through: Apollo entered the fray toppling Castlelake with a bid at 715p / share:

The interesting lesson here is that there were three distinct trades to be had along the way, each offering a compelling risk-reward profile under different frameworks:

1. SoH crisis: largest MoS (>70% discount to metal) and a call option on SoH reopening. Trade-off = timeline.

2. Castlelake announcement (stock gaps up): decent discount to NAV still, with added bonus of new catalyst

3. Castlelake 690p offer recommended by board: merger spread of up to 22% (mispriced execution risk)

We were not smart or attentive enough to be there for the first leg, but the circumstances at “decision node 2” are worth highlighting:

Most thought everything was "priced in" after the announcement, as if the catalyst had already taken place. Our view was that this was just the beginning: the asset was now “in play” and the announcement had triggered a new catalyst, with a clear path to value under the UK takeover code (all while trading at a discount to asset value and pre-SoH levels).

Investing is a game of underwriting mispriced rate-of-change. Downside protection, probabilities, timeline are all part of the equation in optimising IRR.

Don't assume the market has it all figured out already and constantly re-underwrite new information at each decision node.

Subscribe now

Catch-up

Cloudflare powers over 20% of the internet and we thought their announcement earlier this week around Monetisation Gateway was particularly interesting. The basic gist is that we are fast moving towards a world where agent-to-agent interactions will reshape the plumbing of the online economy, enabling new and destroying old business models in the process.

We did a first deep dive on the topic exploring how the switch to agentic workflows might impact a company like Booking Holdings (as one of the largest paid search advertisers globally) — we highly recommend you give it a read as this will be a big topic in the months and years to come.

Subscribe now

As always, thank you for your support.

If you enjoy reading our research, please consider sharing with your network!

Share Origo Research

Following a few requests, we are sharing our merger arb calculator here with paid subs so that you can input your own probabilities in real-time.

You can find our original post on the topic here

Subscribe now

Read more

Booking Holdings spent $32B on advertising over the last 5 years.

In 2025 alone, the company spent $8.2B. The vast majority, over $7B, went towards acquiring high-intent travellers via paid search. This is how BKNG sources 40-45% of its gross bookings: a perfectly rational strategy but an acquisition channel which involves significant value transfer, mostly to Google.

We estimate indirect bookings cost BKNG ~60c for every $1 of net revenue.

Contrast this with direct bookings (55% of room nights) and that’s a 50+ point swing in contribution margin between its most profitable customers and those at the margin. At scale and capitalised, this translates into over $100B of value which Google extracts from BKNG, whose market cap currently sits at $135B.

What happens in a world where the traditional paid search interface is rapidly being abstracted away?

Consumers will increasingly delegate discovery, comparison, and decision-making to AI agents, retaining control mostly at the intent layer.

This shift will profoundly disrupt the plumbing of the online economy. Some businesses will fall off a cliff almost overnight.

At the same time, it will create durable advantages for companies that own assets aligned with how agents make decisions: deep inventory, high-quality structured data, reliable settlement infrastructure, and operational reliability.

A multi-year long/short opportunity.

At Origo, we are in the business of identifying inflection points and underwriting rate of change. To quote Steve Mandel from Lone Pine:

“I don’t need my analyst to tell me when a 10x PE stock is cheap: I need an analyst to tell me when a 40x PE stock is cheap.”

The same can be said on the short side for expensive stocks masquerading as cheap. This is a theme which we believe will be fertile ground for material step changes, at scale, in both directions.

An initial thought experiment.

The space is fluid and rapidly evolving. As we develop our thought process, BKNG is a natural analytical starting point as one of the largest advertisers in paid search. In the note that follows, we attempt to re-underwrite its P&L in a pro-forma world dominated by agentic workflows.

Subscribe now

Same Booking, Two Margins

BKNG booked 1.2 billion room nights in 2025. Its reported direct-channel mix was in the “mid-50s”. Additionally, we can infer from historical guidance that approximately 10% of its ad budget goes towards brand marketing, while the rest is put towards performance marketing (mostly paid search).

At a high-level, we can summarise the value flow as follows:

• BKNG aggregates an inventory of 4.4M+ properties on its platform

• The platform handles $186B in gross bookings

• 55% of customers book through the platform directly (= high margin)

• 45% are paid referrals sourced indirectly (= low margin)

• BKNG nets $27B in revenue at a 14.5% blended take-rate

• BKNG then pays an est. $7.4B to Google et al.

In short, Booking is routing 27% of its top-line back to Google in exchange for a steady flow of paid referrals. That number is even more stark when we attempt to isolate the margin associated with the indirect channel: for every dollar of net revenue coming in, 60c goes back to Google.

Acquiring marginal volume this way is perfectly rational business behaviour. Needless to say, the direct customer is significantly more profitable which is why the organic brand has real value: we are talking about a 50+ point swing in contribution margin between the two channels.

Which cohort will be a first adopter of agentic commerce? We would argue the lower-margin, paid search user, who by definition is a comparison shopper: query-based with limited loyalty.

And where will their agents go? Not to the highest bidder for a click, but to a counterparty that can quote, settle and reverse a stay with zero friction.

Subscribe now

Please Query Me

Machines don’t click ads

Attention is no longer monetisable in a world where web traffic is dominated by agent-to-agent interactions. Simply put:

• Humans compare hotels on Google and click ads

• Agents query platforms and compare inventory through APIs

A user will provide high-level intent (“book a 4-night trip to Barcelona under $900”), and their personal agent will handle research, comparison, negotiation, and booking with minimal further input.

Paid search loses its position as the primary discovery layer as agents are motivated by a completely different set of objective incentives: they are looking for data-driven, low-friction, reliable counterparties.

What Matters at the OTA Layer

In our opinion, business models that rely purely on traffic arbitrage and re-directs will cease to exist.

Providing structured, quality data will still be relevant but the bulk of the value capture should accrue to platforms that also handle the settlement layer.

A key question is whether agents prefer to deal with aggregators or individual hotels directly.

The Preferred Merchant of Record (MoR)

A hotel booking is not a digital good. It is a promise that gets fulfilled in the future, in the physical world, often by a small business and with a non-zero failure rate. Agents optimise for an MoR that absorbs that operational risk:

• Verified inventory

• Machine-readable contract with uniform terms

• Escrowed payment and programmatic refunds

• Track record

BKNG provides exactly this at a level that most individual hotels and smaller chains cannot easily replicate on their own. Its merchant model allows it to handle complex, cross-border payments and compliance, while its massive data layer and supplier relationships create a network effect that is difficult to bypass.

Over the past 5 years, BKNG has aggressively expanded its inventory all while scaling the merchant share of its business. As such it should be well-positioned to capture agentic “footfall”.

Note: it will be interesting to see how the major hotel chains will adapt. Since they should be competitive at the settlement layer, there will be an optimisation question for agents between inventory breadth and economics. It is conceivable that agents will query BKNG first before settling with the hotel chain directly.

Survive AND Thrive?

Today, BKNG is an aggregator that guarantees performance across millions of heterogeneous suppliers and this is more valuable to a machine than to a human. Machines have zero tolerance for ambiguity in settlement and recourse.

Not only does BKNG have a shot at being the preferred MoR, it also means that its share of merchant vs. agency revenue should accelerate. This is important because merchant economics > agency economics. More control, investment float, higher take-rate, higher margin (a flywheel which in turn helps BKNG become more competitive economically vs. the major hotel chains).

Subscribe now

What This Could Look Like

We can summarise our thoughts with three key points that could plausibly support a bull case:

1. Agents will interact with the platform without requiring ads

2. BKNG will accrue value as a query-layer (inventory)

3. BKNG will accrue value as a settlement layer (MoR of choice)

Note on accruing value as a query-layer: we highly recommend you read Cloudflare’s recent post announcing Monetisation Gateway. This lays the foundation for usage-based micro-transactions, enabling internet assets (web pages, datasets, APIs, MCP tools) to monetise pay-per-crawl on x402.

The Agentic Workflow

We take a look at an illustrative agentic flow-chart which impacts the P&L as follows:

• Removes the need for paid referrals (performance marketing expense)

• Introduces a new API revenue stream at the query-layer

• Introduces a potential expense line back to the agent platform

We also anticipate the mix of revenue to become binary over time: agent-sourced bookings should in theory all be merchant-based (either that or BKNG is just used as a query-layer).

The “placement toll” back to the agent platform is a key variable which will very much depend on the head-to-head negotiating leverage of both parties. Unlike the current relationship with Google, BKNG offers intrinsic value in an agentic world which ultimately benefits the end-users of the agent platform. We assume some value extraction by agent platforms but reason that this should remain limited compared to the one-sided and monopolistic share currently captured by Google.

The Pro-Forma P&L

We look at a few different scenarios in terms of acquisition channel mix:

• Mixed: agents capture 35% of bookings, disproportionately from paid search

• All agent: longer-term hypothetical scenario where agents capture 100%

• Direct + agent: all paid search converts to agent, some direct remains

The channel mix dictates performance marketing expense which we scale pro-rata to paid search bookings. In addition, we introduce the toll paid to agent platforms and introduce the API access revenue line-item. Everything else is modelled “as-is”.

Under these assumptions, BKNG’s EBITDA would increase by 40-60%.

We would also highlight the following factors for consideration:

• Brand marketing: assumed flat, arguably less necessary in an agentic world

• Take-rate: agent-channel take-rate should be higher if 100% merchant

• Volume of bookings: in a bull case BKNG actually gains market share

• API yield: based on actual bookings (query volume should be much higher)

• Cost structure: efficiencies should emerge over time here as well

Subscribe now

Final Thoughts

Investing is a game of identifying underpriced probabilistic outcomes.

There are clearly many moving parts involved here, and while our initial hunch is that BKNG could emerge as a big winner, we could end up being completely wrong as the technology evolves.

We do not hold any position (yet) but at ~14x EBITDA today we view the name favourably. Our goal, over time, is to build a long/short basket within this theme as we develop our conviction levels on the direction of travel.

Thank you for reading up to here. At a minimum, we hope you found this case study thought-provoking!

Share

Castlelake put forward a (fifth) offer at 690p / share which finally garnered enough support for the Board to recommend. The revised price represents a 23% improvement over their initial offer and a >70% premium to the unaffected price.

Castlelake’s initial statement of intent was met with scepticism (including from a large part of the Street, who put forward a litany of regulatory and shareholder related reasons as to why a transaction was unrealistic).

Our strong conviction was that the commercial rational was compelling enough for Castlelake to underwrite a significantly higher offer, and — as is usually the case in these situations — when there is a price there is a way.

Scepticism still seems to prevail however. At Monday’s closing price of 610p, the market is currently offering a merger arb spread of 13%.

While there is still theoretical bid-launch risk, our initial reaction is that the implied execution risk is mispriced and we wanted to share with you our quick take on execution risk, timeline and overall R/R from here.

Subscribe now

Execution Risk & Timeline

1) Non-binding nature: the agreement remains non-binding and subject to due diligence. A Rule 2.7 Offer is due by August 3rd.

We view this as being low risk. Castlelake is primarily underwriting the metal. Outside of refining their maintenance adjustment analysis on a bottom-up basis, they will be intimately familiar with the assets already with a fleshed out strategy around repositioning, operating or parting-out segments of the fleet.

There will be some corporate / operational components of course depending on how they intend to streamline the airline and maximise slot value (alongside partners), but nothing there that we would view as being headline risk.

Castlelake are hungry to deploy capital and did not raise the price 5 times just to walk away.

2) Shareholder approval: Scheme requires 75% approval.

Also low risk. (i) this is a cash offer and (ii) it is structured in a way which allows existing shareholders to rollover into the pro-forma entity.

From a price perspective we are very close to the 700p that was rumoured in the press as being a key threshold for major investors outside the Stelios family.

Yes, the family holds 15.3% but this does not constitute a blocking stake. We think there is a decent chance they choose to rollover, which would also help from a regulatory perspective.

All-in-all the Board would not be recommending the offer without some upstream consent.

3) Regulatory approval: EU ownership and control review is required.

Moderate risk, but mostly timeline related in our view. EU airline rules require an EU carrier to be majority owned and effectively controlled by EU nationals.

The workaround (used in post-Brexit structures) is to have a 51% EU sleeve held by EU nationals (in this case Peter Bellew and Mark Breen) so the BidCo is formally EU majority controlled.

There is a question of substance and effective control look-through. This will be nuanced and there is a list of tools which might be utilised to mitigate regulatory concerns (different share classes, governance undertakings, independent trustees, board quotas, ring-fenced subsidiaries). We think this is ultimately workable but as is often the case with airline mergers / takeovers the risk is on the timeline.

Finally, it is also worth mentioning that interloper upside risk is not out of the question given the strategic value of the slot portfolio. IAG would be a natural even though we think this is relatively low likelihood.

Subscribe now

R/R on the Merger Arb Set-Up

If we had to handicap the deal going through, we would assign a base case probability of 85%. Post bid-launch this probably rises to 95%.

As it stands, we view the outcome distribution as follows:

• 85.0% chance of a 13% spread

• 5.0% chance of an improved offer

• 7.5% chance the deal falls-through and we see 8-10% downside as we trade back to ~550p / share

• 5.0% chance we drop 15-18% (in-line with pre-SoH)

We would note that the downside-protected nature of the Company has been well highlighted throughout this process.

With the above assumptions we get to a probability adjusted spread of ~10%.

We would estimate the completion timeline to be in the 6-12 month range allowing for a base case underwrite of 13-28% IRR and an expected value underwrite in the 10-20% IRR range.

We can also see a 30-day spread-compression trade, capturing what is in our view the most heavily mispriced component (a Rule 2.7 Offer coming through).

Note: we are not assuming any ticking fee or break-up fee, which would help mitigate any downside and improve the above calculations.

While we are not typically drawn to the convexity of M&A arb trades, we view the R/R here as interesting, with a strong chance of being able to exit a position a few hundred basis points higher in short order without having to take on the risk of a prolonged regulatory back-and-forth.

Will keep you updated if anything material evolves in the above thought process!

Subscribe now

Welcome back!

It has been a busy week in spin-off land with both the HON→HONA and SPGI→MBGL transactions taking place. This brings us to a total of 11 spin-offs in H1’26, well on pace to exceed the 13 we saw in 2025.

We’ve covered names like Honeywell in idiosyncratic detail. Today we wanted to take a step back and take a look at the empirical data more broadly.

How have recent SpinCos performed? Do RemainCos get overlooked? Let’s dig into the numbers and see whether Greenblatt’s wisdom still holds true.

Subscribe now

Class of 2026 (So Far)

We have seen a eclectic mix of names. The sector spread runs from aerospace (Honeywell Aerospace), freight (FedEx Freight) and auto parts (Active’s Versigent) to cable media (Comcast’s Versant), industrial software (Hexagon’s Octave), maritime tech (Kongsberg Maritime), environmental services, auto data and a pair of biotech carve-outs:

Some of these were classic “shed the declining asset” spins (Comcast→VSNT) while others involved the crown-jewel (Honeywell→HONA). In between we had a reverse Morris Trust (BD’s Biosciences unit merged into Waters), a taxable 1:1 spin that leaves the parent as a royalty manager (AnaptysBio), a dual-listed carve-out that sent $625M back to the parent (Octave), a 19.9% retained stake (FedEx), and a pipeline spun out so Novartis could buy the rest (Avidity’s Atrium).

64% of these have had positive performance from their first regular-way and close and 6 of 11 outperformed the S&P over the same period.

This stands in contrast to RemainCo where only a third outpaced the S&P. In both cases, we did not not any particular correlation between volume (% traded since spin) and performance.

We can illustrate the head to head battle between RemainCo and SpinCo in the below chart (note that this excludes the pairs without a surviving listed Parent).

Here, we can see that SpinCo leads 6 of 9 pairs with only ANAB, KOG and SPGI coming out on top of the RemainCo side.

Overall, it is still early days with 7 SpinCos having less than 3 months of trading history. Out of curiosity, we ran the same analysis on the Class of 2025 and the results were even more convincing.

Subscribe now

Class of 2025: An Outstanding Vintage

For this class where the “youngest” spin is MICC (~7 months), we found the following:

• 85% of SpinCos have displayed positive performance and 8 of 13 outperformed the S&P over the same period

• The RemainCo performance was not as bad with a majority (7 of 13) also outperforming the S&P

• SpinCos still trounced RemainCos, leading 9 out of 13 pairs in the head to head

SNDK was the clear standout, and its performance alone would have made holding the entire spin-off basket worthwhile over the past 18 months.

Will we ever see anything like it again?

Greenblatt, 30 Years On

You Can Still Be a Stock Market Genius made its spin-off case in 1997 on three legs:

1. Forced selling (index funds and mandate-constrained holders dumping shares they never asked for)

2. Neglect (no coverage, no roadshow, no natural buyer on day one)

3. Incentives (management finally paid on their own stock, with option strikes set at the post-spin lows)

While market structures have certainly evolved (HONA integrating the S&P Index on first print, more flexible mandates) and pure undercovered neglect is rare, it remains true that spin-offs crystallise decision nodes, require analysis and create volatility. They remain a constant source of opportunity but there is no magic trick: you still need to do the work.

As we went through this analysis, one name in the 2026 batch caught our attention which we will write to you about over the coming days.

As always, thank you for your support!

Subscribe now

Catch-up on our reports from this week:

Solaria: Valuing this Powered Land Bank Platform in a Grid-Constrained Europe

[Flash] Klarna vs. Google Verdict is In: $1.97B

[Flash] Quick Thoughts on Honeywell Valuation Post Spin-Off

Share

With Solaria’s recent pullback, this is an excellent time to revisit our thesis, refine our valuation approach and highlight the key factors we are monitoring.

Solaria continues to transition from a paradigm of weakening solar generation capture prices to a holistic “plug-and-play” DC infrastructure model anchored by improving PPA terms and adjacent high margin income streams.

This creates an interesting push/pull dynamic between the pace of execution on the new strategy vs. negative legacy trends which could be source of recent weakness (we note that spot solar capture prices are particularly weak YTD).

At €19.9/share, Solaria is currently trading at a 17% discount to the April rights issue which was >6x oversubscribed. An interesting spot to consider adding ahead of what should be a catalyst heavy Q3/Q4.

We detail our thought process at the end of the article after walking through all the key valuation drivers and swing factors.

Before getting into the weeds, let’s recap the big picture thesis here:

Spain is emerging as a prime DC hub

• FLAP-D markets are grid connection constrained (8 year + queues)

• Spain has world class solar resources, cheap land and low population density

• Strategically located with subsea cables landing in Spain (low latency gateway between the Americas, and Latin America)

• Confirmation: Amazon, Microsoft and others investing heavily in the region

Solaria offers a fully de-risked value proposition to hyperscalers

• In Spain, Solaria sits on >1 GW of “true” full-service powered land

• Existing grid demand connection access as a prime beneficiary of Article 6.9

• Land and electrical infrastructure access (1,000 km of private power lines and 100 substations directly adjacent to generation assets)

• Ability to bundle long-term renewable energy supply through Solar PPAs

• Hybrid BESS for optimised self-consumption + grid fallback

• Material savings in distribution charges / electricity tariffs

This bet partially hinges on the management team’s ability to execute on a transformative business plan and we appreciate the fact that we are dealing with an ambitious owner operator with significant skin in the game.

Subscribe now

This article is for informational purposes only and does not constitute financial advice. Origo Research may hold positions in the securities discussed.

The Transition Story

Solaria is at an inflection point with an ambitious €2.5B capex program. Management’s goal is to re-rate the business model away from one-dimensional solar generation player → diversified energy infrastructure platform with a higher quality mix of income streams.

This entails leveraging its existing infrastructure both as a monetisation vehicle (selling grid access rights) and as a means to negotiate improved economics.

The Pull Factor: Spanish Datacenter Story Taking Shape

Solaria’s capacity straddles both the Madrid region as well as Northern Spain, which Morgan Stanley recently highlighted as a key growth market:

“Northern Spain has emerged as perhaps the most exciting secondary DC market in Europe (along with the North of France).

AWS, Microsoft, Blackstone/QTS and Vantage have all announced large-scale projects in the region […] In terms of our core forecasts for Spain:

• Spanish DC capacity (Madrid, North of Spain, other areas) will increase 11x, from ~400 MW (Dec-25) to 4,300 MW (by 2035e)

• Our 2035 forecasts for Spain rise by +55%, from 2.8 GW to 4.3 GW;

• We believe that the North of Spain can ultimately reach 3 GW of capacity”

While Europe is largely a co-location market today (~75%), Hyperscaler capacity is set to accelerate (notably as they pursue their “Made in Europe” credentials) with new / secondary markets set to disproportionally benefit – chief among them Spain as evidenced by Amazon’s recent €40B commitment to the region:

For Solaria, proof of concept has already been established with the Merlin 1 (225MW) and Merlin 2 (213 MW) deals. Importantly Solaria is selling grid access in conjunction with Solar and BESS PPA terms that are above market.

Merlin is the leading REIT in Iberia and their own DC lease-up performance provides positive read-across to Solaria. Solaria maintains significant optionality with its uncontracted capacity and is in ongoing negotiations with multiple hyperscalers and PropCo platforms.

One question for Solaria is whether they seek to go up the value chain: core & shell or even full-fit. The JVs they have set-up with Stonepeak (Generia LandCo JV) and Stoneshield (Gravyx BESS JV) are indicative of management thinking through the gamut of funding channels and we wouldn’t be surprised to see some differences in how they structure the remaining capacity.

Subscribe now

Push Factor: Persistently Weak Solar Capture Prices

Spanish power prices remain subdued, and solar capture rates continue to decline as the number of negative price hours rises. Unlike in Italy, where the marginal price is set by gas, Spanish solar project economics depend heavily on securing fixed-price PPAs (typically 60–70% of volumes) to limit merchant exposure. Project returns are further supported by falling capex per MW and the increasing use of battery storage (BESS).

In today’s environment, management expects projects to deliver ~14% IRR in a low price scenario with ~250bps impact up or down for every €10/MWh delta. Still reasonable but nothing to write home about.

BESS in Spain is emerging as a potential mitigating factor. The intra-day arbitrage opportunity is particularly pronounced and management is claiming ~3 year paybacks on early BESS installations, with up to 500 bps IRR uplift in project economics:

Overtime, electrification, datacenter demand, hydrogen and improving BESS technology should help stabilise the market. In the meanwhile, the standalone Solar story in Spain remains a hard sell given price and curtailment volatility. This is the key argument for bears but also a source of tension which creates opportunity in the name (as we are perhaps seeing now).

While low capture prices are certainly a drag on in-place capacity, 70% of Solaria’s production remains under long-term contracts.

As management further looks to minimise the exposure we note the following:

1. Incremental Solar additions in Spain are DC-linked (pricing power)

2. Solaria is pioneering large-scale BESS including hybrid PPAs

3. Company is diversifying into wind (better economics) + additional geographies (notably Italy) + JVs across the value chain

Paradoxically low prices only serves Spain’s competitive position as a DC hub. In the US, DC demand was its own catalyst for significantly higher PPA prices – not something we are underwriting at all (nor is it required for the story to work as we will see) but worth keeping in mind.

Solaria Valuation Building Blocks

We can think of Solaria’s value drivers as follows:

1. Legacy solar generation

• Existing + secured capacity coming online

• Mix of contracted (regulated or PPA) and merchant cashflow streams (65/35% split)

• Remaining useful life: 25-30 years (most capacity was added post 2019)

2. Powered land bank

• Monetisation of land, grid connection capacity and electrical infrastructure

• Payment per MW spread over 4-5 years (what we can infer from mgmt.)

3. Growth strategy

• Hybrid BESS / Solar + Wind across multiple geographies

• Solar dedicated capacity for datacenters with better PPA terms

• €2.5B capex plan funded out of debt (~65%) and equity (€300M rights issue + asset rotation + cashflow)

In the following sections, we break each of these down in detail. We establish a valuation framework that includes base, downside, and upside cases. This allows us to frame the R/R profile from current levels and outline our thinking ahead of potential upcoming catalysts.

Subscribe now

Read more