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.

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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!)

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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!

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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.

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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.

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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.

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EchoStar Q2 Earnings Call – Captain Obvious

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

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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 w…

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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)

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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%.

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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

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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.

Th…

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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.

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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.

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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.

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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.

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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.

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The headline figure is very close to our probability-weighted forecast of $1.7B and places us somewhere in between the “stand-alone partial” and “substantial” scenarios which we had discussed:

The Klarna press release clarifies that the $1.97B is the gross amount prior to any leakage (we assume for confidentiality reasons). Based on our waterfall assessment of the claim this equates to 3$ / share on a net basis or ~17% of Klarna’s unaffected share price.

Going through the case has been a fun exercise which we hope you enjoyed!

This catalyst was nowhere to be seen in sell-side reports and the reason why we are here: to provide thoughtful analysis on undercovered, idiosyncratic themes.

We have …

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As a reminder the spin-off distributed 1 share of HONA for every 2 shares of HON held at the record date (June 15th). HON simultaneously effected a 1-for-2 reverse stock split.

Yesterday’s closing prices ($220.2 for HONA and 227.8 for HON) equate to a share price of $224 for Honeywell on an ex-ante basis, a slight premium to our purchases in the $208-210 range.

We discussed previously how we did not necessarily expect HONA to initially underperform HON per “traditional” Greenblatt spin-off dynamics and that RemainCo could end up being the more interesting relative opportunity. Interestingly, both tickers sold-off and HON underperformed HONA going into the close.

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Relative Valuation

We take a look at the implied 27E EBITDA multiples for both HON/HONA post spin-off. This includes adjustments for the deconsolidation of Quantinuum post IPO and re-allocation of Holdco costs.

Bas…

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