RPT-Fitch Downgrades China's Winsway to 'C'

Thu Oct 10, 2013 3:20am EDT

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Oct 10 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has downgraded China-based Winsway Coking Coal Holdings Limited's (Winsway) Issuer Default Rating and senior unsecured ratings to 'C' from 'CCC'. No Outlook has been assigned.

This follows the company's announcement on 9 October 2013 that it had received consents from 68.6% of the holders of its outstanding USD notes due 2016 to eliminate a substantial number of the restrictive covenants and certain events of defaults contained in the current indenture. In addition, 33.35% of the holders also tendered their notes in return for payments far below par.

KEY RATING DRIVERS

DDE after Noteholders Tendered: Fitch treats this exchange as a Distressed Debt Exchange (DDE), as all noteholders are stripped of meaningful covenants, including the requirement to apply asset disposal proceeds to repay the notes.

In addition 33.35% of the noteholders are taking an immediate loss on par value by tendering in their notes.

Buyback Background: Existing noteholders were asked to voluntarily tender their notes, receiving either an immediate cash payment of 47.5% of par, or an immediate cash payment of 37.5% of par and cash payment of 25% of par when the notes mature in April 2016. The company also provided an option for noteholders to waive the notes covenants without tendering their notes for a 2.5% consent payment.

Cash Generation Further Deteriorates: Fitch does not expect Winsway's core business to generate positive free cash flow (H113: a reported gross outflow of HKD337m). Fitch believes the prospects for improvement are low, barring a sharp and sustained increase in coking coal prices. This weakens the prospect of increasing cash resources for the notes' repayment in 2016.

Debt Maturity Looms: Following this exercise, Winsway still faces a repayment of USD306.9m (HKD2.38bn) of outstanding notes maturing in 2016. On 30 June 2013, the company reported an unrestricted cash balance of HKD1.79bn, and restricted bank deposits of HKD963m that had been pledged for its bank borrowings. Fitch estimates that a total of USD76m (HKD591m) will be paid out for the notes buyback and consent solicitation fees, lower than the originally expected USD82m (HKD636m)

Refinancing Ability Reduces: Fitch believes that the company will have to rely on refinancing for a significant portion of the scheduled maturity in 2016. However, its success in securing covenant waivers now may worsen the prospects for refinancing.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating actions include:

- Upon settlement of the payments to noteholders who tendered and the execution of the amendment to the indenture, now expected on 11 October 2013, the IDR will be downgraded to 'restricted default' (RD). Following that, Fitch will rate the company and its notes based on the new capital structure, ranking of the notes within the group, its changed liquidity profile, and solvency prospects.

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