S&P keeps Ferrexpo Eurobond rating two notches above Ukraine’s

The Standard & Poor's (S&P) rating agency issued a report on Jan. 19 affirming its “CCC+” rating of the USD 500 mln Eurobond of Ukrainian iron ore pellet producer Ferrexpo (FXPOLN). S&P also assigned the same rating to new notes that Ferrexpo announced it may issue soon with the purpose of exchanging some of them with existing notes, the pellet maker announced on Jan. 18.



The agency also kept Ferrexpo’s foreign currency rating at “CCC+” but downgraded its outlook to “negative." Such a revision reflects the potential deterioration of the company’s liquidity position if no refinancing becomes available in the next 18 months, according to S&P's analysis. “If the iron ore spot price remains low throughout 2015 and 2016, some of the liquidity sources we assumed previously won't be available to serve the debt," S&P commented. “This could be the case if Ferrexpo cannot borrow an additional USD 150 mln under the PXF facility or refinance part of the forthcoming debt maturities."



Ferrexpo had USD 464 mln on its offshore accounts as of end-2014, according to S&P, while it is due to repay USD 240 mln in 2015 and USD 700 mln in 2016, including the Eurobond. S&P analysts estimate EBITDA will decrease to USD 250-300 mln in 2015 from USD 400-450 mln in 2014 (EBITDA was USD 506 mln in 2013).



Roman Topolyuk: Among Ukrainian sovereign and corporate names rated by S&P, Ferrexpo remains the single issuer with the highest rating, or two notches above the Ukrainian government's sovereign rating. The company enjoys such a rating due to its strong balance sheet. However in 2015, its liquidity position could deteriorate due to further weakness in the iron ore market, caused by increasing global oversupply, on top of a 48% yoy plunge in iron ore prices last year.



S&P’s concern regarding Ferrexpo’s inability to draw another PXF facility may be attributed to the company’s projected worsening leverage indicators. We project total debt-to-EBITDA will increase to 4.6x by the end of 2015 (on annual EBITDA forecast of USD 290 mln), compared to 2.3x as of end-3Q14 and Eurobond covenant of 2.5x. However, even without drawing this facility, under our current projections of Ferrexpo’s selling prices - falling 19% yoy to USD 90/t in 2015, then 11% yoy to 80/t in 2016 and remaining flat thereafter - the company could generate around USD 949 mln in net operating cash flow in 2015-19. Together with current cash on books of USD 608 mln, that would cover its scheduled debt repayments of USD 1.3 bln for the same period.



The risk posed of a liquidity gap emerging in 2016 might decrease significantly if two-thirds of the holders of its 2016 Eurobonds agree to the Jan. 19 offer to exchange them for new notes repayable in 2018-2019.

Источник: Конкорд Капитал