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Ferrexpo: 2016s restructuring may effectively resolve distress risks

05.06.2015 | Источник: ICU
Тема: Обзоры по компаниям и отраслям, ICU, Инвестиционный Капитал Украина

Second attempt to restructure remaining 2016s. On May 28, Ferrexpo announced a new consent solicitation for its US$286m in outstanding Eurobonds maturing in 2016. According to the offer, the 2016 notes may be exchanged for new notes with a 10.375% coupon paid semiannually, which is 2.5pp higher than previously, for a 35% down payment. The remaining 65% will be paid in two equal installments on 7 April 2018 and 7 April 2019. The bondholders may also receive an early consent fee of 2% (or a base consent fee of 0.5%) if they vote after the early consent deadline, 15 June, and prior to the final deadline, 30 June.

1Q15 EBITDA heavily hit by falling iron ore prices. Together with the consent solicitation, Ferrexpo published its 1Q15 financial results. The company's revenues declined 38% YoY to US$258m, EBITDA went down 41% YoY to US$112m, and net income fell 53% YoY to US$58m. Operating cash flow declined 44% YoY to US$46. Cash production costs fell 34% YoY to US$33/t. Total debt increased 14% YoY to US$1.2bn, while net debt increased 2% YoY to $695m, so net debt/LTM EBITDA went up to 1.7x compared to 1.4x in 2014.

Credit profile looks strong enough to repay 2016s without restructuring. According to our base case scenario, the 2016 notes will be repaid under the following conditions: benchmark iron ore prices stay in the range of US$52-54/t in 2015-18; Ferexpo's cash production costs remain below US$36/t in 2015-18; and the company receives an additional pre-contracted pre-export facility (PXF) of US$150m after August 2015. Under these key assumptions, Ferrexpo will not need further refinancing at least until 2019 regardless of whether the company restructures its 2016s.

Bondholders not participating in the restructuring still face high risks of weak iron ore market and poor refinancing. Should the company fail to attract the pre-contracted PXF in 2015-19 and iron prices fall below US$52/t in 2015-19, Ferrexpo may start experiencing a cash deficit as soon as 2017 without 2016s restructuring. Iron ore prices falling below US$49/t in 2016 may cause Ferrexpo's cash shortage in 2017 without 2016s restructuring even if the company obtains the US$150m PXF. Should these threats become more tangible through the end of 2015, the company may propose another restructuring offer by the beginning of 2016, but on less attractive terms, which the bondholders would find difficult to negotiate.

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