Zip: Soft Default on Debt Alleviates Balance Sheet Pressure, but Not Operational Headwinds

We keep our fair value estimate of AUD 0.45 per share for no-moat Zip. Its recent convertible note restructuring, which will result in debtholders receiving less than the originally lent amount, represents a soft default. The existing AUD 330 million convertible note would be reduced to a new AUD 138 million note with revised terms—including a new conversion price (about AUD 0.52) that more closely resembles Zip’s latest closing price (AUD 0.50), instead of north of AUD 12 prior. The restructuring would be facilitated by initially converting about AUD 40 million of debt into shares and paying debtholders cash incentives that are funded by institutional investors. This follows a similar convertible note restructuring in December 2022.