(The following statement was released by the rating agency)
Jan 14 - Standard & Poor's Ratings Services said today that it assigned its 'B' issue rating to the proposed EUR275 million senior unsecured notes due 2021, to be issued by The Netherlands-headquartered New World Resources N.V. (NWR; BB-/Negative/--). NWR is a holding company for coal mining operations in the Czech Republic and Poland.
The issue rating on the proposed notes is subject to both the successful issuance and our satisfactory review of the final documentation.
The 'B' issue rating on the proposed senior unsecured notes is two notches below the long-term corporate credit rating on NWR. This reflects the notes' subordinated position in the capital structure. On the issue date, the proposed notes will not benefit from any collateral or be guaranteed by any of the issuer's subsidiaries, whereas the existing senior unsecured notes due 2015 benefit from second-ranking pledges over NWR's mining subsidiaries.
We understand that most of the proceeds will be used to repay NWR's senior unsecured notes due 2015 (EUR258 million outstanding on Dec. 31, 2012).
We consider the transaction to be neutral for the corporate credit rating on NWR. The rating reflects NWR's ability to offset weakening profitability, due to lower hard coking coal prices, in the coming quarters through internal measures and thanks to our view of its "adequate" liquidity position. That said, the main threat to NWR's liquidity under our base-case credit scenario is a possible breach of covenants under the company's revolving credit facility (RCF) and export credit agency loan as early as the second quarter of 2013. We would anticipate a covenant beach if the price of hard coking coal--NWR's most profitable mining product--remains less than $180 per ton in the coming months. However, at this stage, we do not give a possible covenant breach much weight because the outstanding amounts under the relevant debt instruments are relatively small compared with the outstanding cash on the company's balance sheet. In addition, we think that the company could obtain covenant waivers in the event of a breach.
Following the proposed notes issue and the refinancing of the existing EUR258 million senior unsecured notes, NWR's capital structure will consist of four debt instruments. These instruments are: EUR500 million of senior secured notes due 2018; EUR275 million of proposed senior unsecured notes due 2021; a EUR100 million fully available RCF due 2014; and a EUR78 million amortizing export credit agency loan due 2018. The RCF, together with other priority liabilities, ranks ahead of the senior secured and unsecured notes.
The proposed notes issue will contain a covenant that limits an increase in the amount of debt in the capital structure unless there is a material increase in EBITDA.
The issue rating on the senior secured notes is 'BB-', in line with the corporate credit rating on NWR. The notes are secured by first-ranking share pledges on NWR's three main mining operating subsidiaries, OKD, a.s., OKK Koksovny, a.s., and NWR Karbonia S.A. In addition, the three operating subsidiaries provide upstream guarantees, which rank the secured notes at least pari passu with unsecured liabilities at the operating company level. We view the senior secured notes' security package as relatively weak because the noteholders have no security over fixed or current assets.
The 'B' issue rating on the proposed senior unsecured notes reflects the notes' subordinate position in the capital structure. The notes are secured by second-ranking share pledges over the mining subsidiaries, with no upstream guarantees.
Any insolvency proceedings against NWR would most likely originate in the Czech Republic and Poland. Although the various notes have issue ratings, we have not assigned recovery ratings because our review of the insolvency regimes in the Czech Republic and Poland is not complete.
RELATED CRITERIA AND RESEARCH
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Czech Coal Miner NWR Outlook Revised To Negative On Weak Coking Coal Prices And Reduced Output; 'BB-' Rating Affirmed, Aug. 31, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Criteria - Corporates - General: 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
New World Resources N.V.
Senior Unsecured Debt B