(Repeat for additional subscribers)
Sept 25 (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 'CCC' from 'B' and removed them
from Rating Watch Negative. No Outlook has been assigned.
This follows the company's announcement today that it has extended by 10 working
days its tender offer to buy back its USD bonds due 2016. The company reported
that only 39.5% of outstanding bonds had been tendered to date. This is the
second extension since the company first announced the tender offer on 20 August
We believe that the company's offer is opportunistic and the extension reflects
its desire to pursue some form of covenant relaxation within the bonds,
especially since the company has now offered the bondholders an option to accept
covenant waivers for a consent solicitation fee without tendering the bonds. The
intention to forge ahead with this offer does not build positive momentum for
the refinancing of the bonds in April 2016 should the bondholders reject the
Key Rating Drivers
Cash Generation Further Deteriorates: We do not expect Winsway's core business
to generate positive free cash flow (H113: a reported gross outflow of HKD337m).
We believe 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 bond's repayment in 2016.
Debt Maturity Looms: If the company fails to obtain sufficient acceptances to
its offer, it faces a repayment of USD460.5m (HKD3.57bn) of outstanding bonds
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.
Refinancing Ability Reduces: We believe that the company will have to rely on
refinancing for a significant portion of the scheduled maturity in 2016.
However, its continued push to seek covenant waivers on its debt now may worsen
the prospects for refinancing this bond.
Buyback Background: Existing bondholders are being asked to voluntarily tender
their bonds, 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 in April
2016. Under the terms of the buyback, cash tenders will be accepted only if a
minimum 50% of bond amounts outstanding are tendered. If more than 50% of
bondholders (by value) tender, bond covenants, including a 10% debt/total asset
cap, will also be amended. This will also materially impair bondholders that
have not tendered. The company has now provided an option for bondholders to
waive the bond covenants without tendering their bonds for a 2.5% non-tendering
DDE if Minimum Bondholders Tender: Fitch will treat the exchange as a Distressed
Debt Exchange (DDE) if bondholders tender their bonds, to the minimum level of
acceptances required to amend the bond covenants. This is because a material
change in terms would be imposed, the group's existing cash resources may be
utilised to prepay the bonds below par, and all bondholders are stripped of
meaningful covenants, including the requirement to apply asset disposal proceeds
to repay the bond.
DDE Dependent on Voting: The voluntary tender offer itself does not constitute a
DDE. Under Fitch's criteria a DDE has taken place if both of the following
apply: firstly, the restructuring imposes a material reduction in terms compared
with the bond's original terms. Here, only if accepted by the required number of
bondholders, the less-than-par cash exchange and bond amendments would
constitute a material change in terms. Secondly, the exchange is conducted to
avoid bankruptcy or a traditional payment default.
Negative: Future developments that may, individually or collectively, lead to
negative rating actions include:
- Upon announcement that minimum acceptances have been received to trigger this
tender, Fitch would downgrade Winsway's IDR and bond rating to 'C'. On
confirmation of completion of this exchange, the IDR would be downgraded to
'restricted default' (RD). Post-execution Fitch expects to rate the company and
its bonds based on the new capital structure, ranking of the bonds within the
group, its changed liquidity profile, and solvency prospects.
- If the tender offer is not successful, the ratings are likely to be affirmed
at current levels.