TEXT-S&P cuts New Reclamation Group to 'SD'

Wed Nov 7, 2012 11:20am EST

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Overview
     -- South-Africa based recycler New Reclamation Group Pty Ltd. (Reclam) 
recently announced that between April and October 2012, it acquired 24% of its 
outstanding secured notes in the open market at a significant discount of 
about 25%.
     -- We consider that these buybacks constitute a distressed exchange 
because of Reclam's weak liquidity and our uncertainty over its ability to 
repay the notes by the time they mature on Feb. 1, 2013.
     -- We are therefore lowering our long-term corporate credit rating on 
Reclam to 'SD' (selective default) from 'CCC-'.
     -- We are also lowering our issue rating on Reclam's EUR116 million secured
notes to 'D' (default) from 'CCC-'. 

Rating Action
On Nov. 7, 2012, Standard & Poor's Ratings Services lowered to 'SD' (selective 
default) from 'CCC-' its long-term corporate credit rating on South-Africa 
based recycler New Reclamation Group Pty Ltd. (Reclam). 

At the same time, we lowered our issue rating on the company's EUR116 million 
secured notes (previously EUR153 million) to 'D' (default) from 'CCC-'. The 
recovery rating on the secured notes remains unchanged at '4', indicating our 
expectation of average (30%-50%) recovery in the event of a payment default.

Rationale
The downgrades reflect Reclam's recent announcement that between April and 
October 2012, it acquired 24% of its outstanding secured notes in the open 
market at a significant discount of about 25%. We do not consider the buybacks 
to be opportunistic, but rather to constitute a distressed exchange, because 
of the company's weak liquidity and our uncertainty over its ability to repay 
the notes by the time they mature on Feb. 1, 2013. In addition, we understand 
that management could continue to buy back further notes in the coming weeks. 

During its public investor call, management mentioned that the buybacks were 
funded by internally generated cash and unsecured borrowings with a maturity 
profile that extends beyond the maturity of the notes and is not conditional 
on the conclusion of any other refinancing. We find this disclosure to be 
poor, and as not providing the essential information we need to fully 
understand the current situation. 

In light of the possibility of further buybacks, we do not envisage raising 
the 'D' rating on the secured notes. We will re-evaluate the corporate credit 
rating in the near term, but based on the information we have at the moment, 
we do not expect to raise it above 'CCC-'. The 'CCC-' rating would reflect our 
view of the risks associated with Reclam refinancing the notes and our 
uncertainty over whether the group will change its capital structure before 
the notes mature.

For further details on our previous rating actions on Reclam, see "South 
Africa-Based Recycler The New Reclamation Group Downgraded To 'CCC-' On 
Refinancing Risk; Off Watch; Outlook Neg," published June 29, 2012, on 
RatingsDirect on the Global Credit Portal. For an explanation of our approach 
to distressed exchange offers, see "Rating Implications Of Exchange Offers And 
Similar Restructurings, Update," published May 12, 2009.

Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit 
Portal, unless otherwise stated.
     -- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 
1, 2012
     -- South Africa-Based Recycler The New Reclamation Group Downgraded To 
'CCC-' On Refinancing Risk; Off Watch; Outlook Neg, June 29, 2012
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Metals 
Industry, June 22, 2009
     -- Rating Implications Of Exchange Offers And Similar Restructurings, 
Update, May 12, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Downgraded
                                     To     From
New Reclamation Group Pty Ltd.
Corporate Credit Rating              SD     CCC-/Negative
 Secured Debt                        D      CCC-
 Recovery Rating                     4      4


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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