(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
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