How does Vow ASA's covenant breach and subsequent waiver compare to similar situations among peer companies, and what does that mean for its credit risk and cost of capital?

Vow’s July‑15 disclosure of a restated Q1 EBITDA, a material one‑off charge and the subsequent breach of its DNB loan covenants puts the firm in the same risk band as a handful of Norwegian mid‑cap energy and renewables peers that have recently required covenant waivers (e.g., Scatec Solar’s 2024 loan amendment and Nel ASA’s 2023 restructuring). In each case the waiver was granted on a “clean‑up” basis – the lender kept the facility alive but demanded tighter monitoring and, in many instances, a premium uplift on the revolving rate. Credit‑rating agencies typically respond to such events by moving the issuer onto a watch list, which historically translates into a 50‑150 bps widening of senior unsecured spreads for comparable issuers. For Vow, the market has already priced the negative sentiment (‑60 on the news sentiment score) into the equity, with the stock testing a low‑volume support around NOK 4.20 and a steep 20‑day down‑trend line. The bond market is likely to follow suit, with its 5‑year senior notes expected to trade at a spread of roughly 250 bps over Norwegian‑government bonds—significantly above the 150‑180 bps typical for financially sound peers.

From a trading perspective the waiver removes the immediate default risk but flags lingering cash‑flow fragility. Unless Vow can demonstrate a rebound in EBITDA (e.g., via the upcoming Q3 results or a clear cost‑reduction roadmap), the cost of capital will remain elevated and the equity downside bias persists. A short‑or‑sell‑the‑rally strategy is justified if the stock breaks below the NOK 4.10 psychological barrier, targeting the NOK 3.70 low‑point with a tight stop at NOK 4.25. Conversely, a contrarian “buy‑the‑dip” could be viable only after the next earnings release if the waiver is complemented by a covenant‑compliance plan that reduces the spread premium—ideally supported by a bond‑yield pull‑back and an improvement in the company’s credit default swap pricing. Monitoring DNB’s covenant‑monitoring reports and any rating‑agency watch updates will be key to timing either entry or exit.